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 examines three valuation methods, each of which should lead to the same value for a given asset. These are the Adjusted Present Value, Adjusted Discount Rate and Flows to Equity methods. To achieve identical valuations, however, the different methods must be implemented with cost of...

This paper examines how rules to determine the source of income internationally for tax purposes can have important effects on the form in which taxable income is reported and on the location of economic activity. In the case of U.S. law, two provisions are significant: allowing a portion of...

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the...

Using data on the prices of capital goods, this paper shows that much of the benefit ofquot; investment tax incentives does not go to investing firms but rather to capital suppliers throughquot; higher prices. The reduction in the cost of capital from a 10 percent investment tax creditquot;...

Our paper begins with the relatively simple problem of optimal taxation as viewed by the capital-exporting ("home") country when it can assume that its actions do not alter the tax rate in the host country. Section I also shows that when foreign investment accounts for a significant fraction of...

This paper presents a framework for analyzing the costs and benefits of internal vs. external capital allocation. We focus primarily on comparing an internal capital market to bank lending. While both represent centralized forms of financing, in the former case the financing is owner-provided,...

Minimum capital requirements are a central tool of banking regulation. Setting them balances a number of factors, including any effects on the cost of capital and in turn the rates available to borrowers. Standard theory predicts that, in perfect and efficient capital markets, reducing banks'...

This paper examines the impact of globalization on the cost of equity capital. We argue that the cost of equity capital decreases because of globalization for two important reasons. First, the expected return that investors require to invest in equity to compensate them for the risk they bear...

We document that the risks and pre-fee returns of broad hedge fund indices can be accurately matched with simple equity index put writing strategies, which provide monthly liquidity and complete transparency over their state-contingent payoff profiles. This nonlinear risk exposure combines with...