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Complex organizations, tax policy and financial stability

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  • Giovanna Nicodano
  • Luca Regis

Abstract

This paper develops a theory of corporate ownership and leverage of multi- ple firms under a tax-bankruptcy trade-off, allowing for internal bailouts. It then questions whether tax policy contributes to the default of the resulting complex or- ganization. Absent other taxes and non-financial synergies, ownership is irrelevant to firm value. With Intercorporate Dividend Taxes, SPV-like subsidiaries or hori- zontal groups are optimal as they avoid double-taxation while preserving the tax benefits of debt. Adding Thin Capitalization rules makes complex organizations more stable than stand-alone firms. These results suggest to extend both corrective taxes to SPVs so as to promote financial stability.

Suggested Citation

  • Giovanna Nicodano & Luca Regis, 2014. "Complex organizations, tax policy and financial stability," Carlo Alberto Notebooks 359, Collegio Carlo Alberto, revised 2015.
    • Handle: RePEc:cca:wpaper:359
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    More about this item

    Keywords

    ownership structure; default; dividend taxes; Thin Capitalization; parent subsidiary; debt shifting; securitization.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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