Citation

Discussion Paper Details

Please find the details for DP9151 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases

Author(s): Harry Huizinga, Johannes Voget and Wolf Wagner

Publication Date: September 2012

Keyword(s): Capital gains taxation, Cost of capital, International takeovers and Takeover premium

Programme Area(s): Public Economics

Abstract: In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Cross-country 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9151

Bibliographic Reference

Huizinga, H, Voget, J and Wagner, W. 2012. 'Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases '. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9151