The cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system. The purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest, via the cost of...

This paper develops a theoretical model of firm behavior consistent with the maximization of shareholder utility, and derives empirically testable implications of different theories of equity finance. Using data on firm earnings and previous investment and financial behavior, we assess whether...

This paper reviews the theory and evidence regarding the impact of taxation on corporate financial policy. Starting from a basic characterization of the classical corporate income tax and its effects, the analysis focuses on three areas of research: equity policy, debt-equity decisions, and...

This paper analyzes the distortions created by taxation and the features of tax systems that minimize such distortions (subject to achieving other government objectives). It starts with a review of the theory and practice of deadweight loss measurement, followed by characterizations of optimal...

This paper analyzes features of perfect taxation also known as optimal taxation when one or more private markets is imperfectly competitive. Governments with perfect information and access to lump-sum taxes can provide corrective subsidies that render outcomes efficient in the presence of...

This paper attempts to bring theoretical and empirical research on capital gains realization behavior closer together by considering whether investors who appear to engage more in strategic tax avoidance activity also respond differently to tax rates. We find that such investors exhibit...