NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View

Hans-Werner Sinn

NBER Working Paper No. 3501 (Also Reprint No. r1677)
Issued in December 1991
NBER Program(s):   PE

This paper is a critical survey of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushion effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on a potential US budget compromise, and suggests the idea of a Political Miller Equilibrium.

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Document Object Identifier (DOI): 10.3386/w3501

Published: Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View, Hans-Werner Sinn. in Tax Policy and the Economy, Volume 5, Bradford. 1991

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