Template-Type: ReDIF-Paper 1.0
Author-Name: Matteo F. Ghilardi
Author-Name-First: Matteo F.
Author-Name-Last: Ghilardi
Author-Name: Roy Zilberman
Author-Name-First: Roy
Author-Name-Last: Zilberman
Title: Fiscal Financing and Investment Irreversibility
Abstract: We examine the macroeconomic, asset pricing, and public debt consequences of <i>deficit-financing dividend taxation</i> in a dynamic general equilibrium model featuring partial investment irreversibility. Dividend taxes interact directly with the occasionally-binding irreversibility constraint, generating <i>tax-augmented</i> user-cost and hangover channels that both shape investment and debt-to-output fluctuations and account for a sizeable share of their long-run volatilities. Our analysis further reveals that debt-offsetting dividend tax hikes initially trigger investment inactivity through higher user-costs, followed by a surge driven by intertemporal tax arbitrage and hangover effects. Finally, debt-driven dividend tax rules amplify asset price fluctuations while delivering only modest fiscal revenue changes.<br/><br/>
Creation-Date: 2025
Number: 422913074
Classification-JEL: E22, E32, E62, H25
Keywords: Dividend Taxation, Investment Frictions, Asset Prices, Deficit Financing;, Public Debt
Handle: RePEc:lan:wpaper:422913074