Invites you to a

Macroeconomics and Trade seminar presented by

Chung Tran

(Australian National University) 

Dividend Imputation, Investment and Capital Accumulation in Open Economies

Co-author

Sebastian Wende (Australian Treasury)

Wednesday 15 March 2023

2:00pm – 3.30pm

Via Zoom: 859 7699 8376

Abstract: An income tax system with dividend imputation allows companies to pass on profit taxes to shareholders in form of franking tax credits, which potentially eliminates double taxation of capital income. Would dividend imputation lead to more savings, investment and capital accumulation? We examine this issue in the context of a small open economy model with heterogeneous firms and investors. Our results indicate significant increases in capital accumulation and output under dividend imputation. Eliminating franking credits raises government revenue, but discourages domestic households/investors to save and invest; meanwhile, in-flows of foreign capital do not fully offset such reduction in domestic savings. High income households bear larger burden of capital income taxation, while low income households enjoy welfare gains from public transfers financed by additional tax revenue. Lowering taxes on dividend and capital gains, i.e., imitating the American solution to the double taxation issue, mitigates the adverse welfare effects on high income households; however, aggregate capital and output are still relatively lower. Interestingly, international investors are not marginal investors due to heterogeneity in firm investment and valuation.

For further information contact: Macroeconomics and Trade seminar series coordinator Dr James Graham (james.a.graham@sydney.edu.au)

For all upcoming seminars in School of Economics see Our events and Calendar