samlet årgang - Økonomisk Institut - Københavns Universitet

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NATIONALØKONOMISK TIDSSKRIFT 2005. NR. 3
dr e 1 2 1 re 1 2 13 r e 1
= v 1 (c 2 13 –1)+v 2 (c 13 c 23 – c 12 ) – (37)
dt i 1 2 3 (1 – t) 2
dr e 2 2 2 re 2 1 23 r e 2
= v 2 (c 2 23 –1)+v 1 (c 13 c 23 – c 12 ) – (38)
dt i 2 2 3 (1 – t) 2
These results show that even if investors are well-diversified (v1→ 0 and v2→ 0),
the shareholder income tax will distort the required return to unquoted shares. In the
normal case where j 3 > 0, a higher shareholder income tax rate is seen to reduce the
cost of equity finance for unquoted companies, because the tax falls more heavily on
quoted shares, thereby inducing substitution towards unquoted shares.
In summary, the Swedish policy of granting double tax relief only to holders of
unquoted shares is not neutral towards real investment incentives. To achieve (approximate)
neutrality in the case of well-diversified investors, it is necessary to grant a
general rate-of-return allowance for all shareholdings, as we saw in section 4. Alternatively,
neutrality with well-diversified investors can be achieved if the shareholder income
tax with a rate-of-return allowance is levied only on returns to unquoted shares
while returns to quoted shares are left free of tax, as proposed in Sørensen (2005b). In
such a regime one can show that dre 1 /dt and dre 2 /dt will again be given by (31) and (32),
implying dre j /dt → 0 for vj → 0, j = 1, 2. Imposing the tax only on unquoted shares
might make sense if the main purpose of the tax is to prevent the owners of small companies
from transforming heavily taxed management salaries into lightly-taxed dividends
or capital gains on shares, and if policy makers do not wish to give domestic
shareholders a tax incentive to sell their shares in quoted companies to foreign investors.
Assuming plausibly that 13 > 0 and 23 > 0, a comparison of (31) and (32) to (37)
and (38) reveals that the current Swedish tax system provides a stronger stimulus to
risk-taking in small companies compared to a general shareholder income tax with a
rate-of-return allowance for all shares (»the uniform tax«), or compared to a tax which
is levied only on the equity premium on unquoted shares (»the selective tax«). The fact
that the Swedish tax system tends to reduce the cost of capital for small companies
even when investors are fully diversified suggests that it is too favourable to investment
in this sector. By contrast, »the uniform tax« and »the selective tax« will only
tend to stimulate risk-taking in unquoted companies when investors are not well diversified,
indicating that these tax systems have better efficiency properties than the
current Swedish rules.