Equity Implications Of A Corporate Tax Reform

Abstract

The paper attempts to access the likely distributional effects of the corporate tax reform in Greece. The major distributional consequences of introducing a new corporate tax system upon dividend policy, on the share prices, the shifting and incidence of the tax and the removal of the existing tax inequities. The equity implications from the introduction of the new system could be summarized as follows: The new system favours distribution to less degree than the old system which means that under the latter a larger proportion of income could be closely adjusted to taxable capacity of the individual shareholder. On the other hand, under the new system corporate income is taxed by a flat and not by a progressive tax rate as the principle of taxable capacity would suggest. If we accept that higher payout ratios have a positive effect upon share prices then, since the new system favours distribution to a less degree than the old system it would have a negative effect upon share prices. Finally, the greater tax burden on the corporation level, under the new system, provides the corporation with a greater incentive to shift the tax.