Why is there corporate taxation ? The role of limited liability revisited
Becker J, Fuest C
Abstract
Most economists reject the idea that corporate taxation should be interpreted as a price for the privilege of limited liability. In this paper, we reconsider this idea and show that limited liability can lead to overinvestment if information is incomplete. In this setting, introducing an additional tax on limited liability contracts is welfare-enhancing. Our model thus offers an explanation for the nexus between double taxation and limited liability observed in many existing tax systems.
Keywords
corporate taxation limited liability
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
Published
Year
2007
Journal
Journal of Economics
Volume
92
Issue
1
Start page
1
End page
10
Language
English
ISSN
0931-8658