Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2012-09-27
Number: 12-100/IV/DSF39
Author-Name: Harry Huizinga
Author-Email: huizinga@uvt.nl
Author-Workplace-Name: Tilburg University, and CEPR
Author-Name: Johannes Voget
Author-Email: voget@uni-mannheim.nl
Author-Workplace-Name: University of Mannheim, Oxford University Centre for Business Taxation,CentER Tilburg University
Author-Name: Wolf Wagner
Author-Email: w.wagner@uvt.nl
Author-Workplace-Name: Tilburg University, Duisenberg School of Finance
Title: Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases
Abstract: In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Crosscountry differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. A one percentage point increase in the capital gains tax rate reduces the value of equity by 0.225%. The implied average effective tax rate on capital gains is 7% and it raises the cost of capital by 5.3% of its no-tax level. This indicates that capital gains taxation is a significant cost to firms when issuing new equity.
Classification-JEL: G32, G34, H25
Keywords: Capital gains taxation, Cost of capital, International takeovers
File-Url: https://papers.tinbergen.nl/12100.pdf
File-Format: application/pdf
File-Size: 307383 bytes
Handle: RePEc:tin:wpaper:20120100