Abstract
If capital for corporate finance was available from a common global pool and at zero transaction cost, then does after-tax arbitrage require harmonization of income tax rates across jurisdictions? This paper shows that the answer is in the negative. When a corporation has the choice of deciding the fraction of income that it distributes as dividends with the remainder held for future capitalization, then such choice brings about arbitrage in after-tax rates of return to investors facing a common pre-tax return but different rates of income taxes. Policy implications are drawn from this result.
Original language | English |
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Pages (from-to) | 111-115 |
Number of pages | 5 |
Journal | Quantitative Finance |
Volume | 2 |
Issue number | 2 |
DOIs | |
Publication status | Published - 2002 |