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Failures in Corporate Governance: Can the Corporation Tax Improve Efficiency?

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  • Vesa Kanniainen

Abstract

The well-known tax results obtained in the traditional model of investment are re-examined in a model of imperfect corporate governance. The corporation tax, the dividend tax and the capital gains tax have unconventional stock market and real effects which operate through the managerial compensation scheme. A risk-averse management has an incentive to overinvest, using the corporation as a savings instrument to enjoy private benefits and insure itself against income risks. Corporation tax may improve corporate governance and investment efficiency but only under small price uncertainty. Under larger price uncertainty, corporate investment operates as an insurance device, and efficiency gains are possible but less likely to materialize.

Suggested Citation

  • Vesa Kanniainen, 1999. "Failures in Corporate Governance: Can the Corporation Tax Improve Efficiency?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(3/4), pages 310-310, July.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200007)56:3/4_310:ficgct_2.0.tx_2-m
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    Cited by:

    1. Fabian Meißner & Georg Schneider & Andreas Scholze, 2014. "Vergleichende Analyse verschiedener Ausprägungen einer erhöhten Besteuerung von Bonuszahlungen," Schmalenbach Journal of Business Research, Springer, vol. 66(3), pages 212-241, May.
    2. Ewert, Ralf & Niemann, Reiner, 2012. "Steuern in Agency-Modellen: Mehrperioden- und Multi-Task-Strukturen," arqus Discussion Papers in Quantitative Tax Research 135, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Niemann, Rainer, 2007. "Risikoübernahme, Arbeitsanreiz und differenzierende Besteuerung," arqus Discussion Papers in Quantitative Tax Research 28, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Henrekson, Magnus & Sanandaji, Tino, 2016. "Owner-Level Taxes and Business Activity," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 12(1), pages 1-94, March.
    5. Marko Koethenbuerger & Michael E Stimmelmayr, 2022. "The Efficiency Costs of Dividend Taxation with Managerial Firms," The Economic Journal, Royal Economic Society, vol. 132(643), pages 1123-1149.
    6. Thomas Bauer & Thomas Kourouxous & Peter Krenn, 2018. "Taxation and agency conflicts between firm owners and managers: a review," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 33-76, February.
    7. Rainer Niemann, 2011. "Asymmetric Taxation and Performance-Based Incentive Contracts," CESifo Working Paper Series 3363, CESifo.
    8. Koethenbuerger, Marko & Stimmelmayr, Michael, 2014. "Corporate deductibility provisions and managerial incentives," Journal of Public Economics, Elsevier, vol. 111(C), pages 120-130.

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