Working Paper: NBER ID: w10944
Authors: Randall Morck
Abstract: Arguments for eliminating the double taxation of dividends apply only to dividends paid by corporations to individuals. The double (and multiple) taxation of dividends paid by one firm to another -- intercorporate dividends - was explicitly included in the 1930s as part of a package of tax and other policies aimed at eliminating United States pyramidal business groups. These structures remain the predominant form of corporate organization outside the United States. The first Roosevelt administration associated them with corporate governance problems, corporate tax avoidance, market power, and an objectionable concentration of economic power. Future tax reforms in the United States should mind the original intent of Congress and the President regarding intercorporate dividend taxation. Foreign governments may find the American experience of value should they desire to eliminate their business groups.
Keywords: double taxation; intercorporate dividends; pyramidal business groups; tax policy; corporate governance
JEL Codes: H1; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Similar tax policies in other countries (H29) | Elimination of business groups (L22) |
| Intercorporate dividend taxation (G35) | Economic infeasibility of pyramidal structures (R38) |
| Introduction of intercorporate dividend taxation (G35) | Tax penalty on pyramidal groups (H26) |
| Tax structure (H20) | Higher effective tax rates for controlling shareholders in pyramidal groups (H32) |
| Higher effective tax rates for controlling shareholders in pyramidal groups (H32) | Disincentive for maintaining complex corporate structures (G38) |
| Tax policies (H29) | Elimination of large business groups in the U.S. (L49) |
| Tax policies (H29) | Promotion of widely held, freestanding corporations (G38) |