Corporate Taxation and Agency Problems
The effects of corporate taxation and of capital income taxation on corporate investment have been extensively discussed within the neoclassical model of firm behavior.1 The neoclassical framework, however, treats the firm as a "black box", operating so as to maximize the firm value. It thereby disregards tensions between executives'and shareholders'interests which are central to the modern corporate governance literature. This literature rests on the premise that interests of shareholders and the management are misaligned and analyzes the role of incentive pay and the corporate capital structure in limiting the divergence of interests; see Tirole (2006). It is the aim of this project to bridge the gap between these two strands of literature by analyzing the e¤ects of corporate taxes and their optimal choice in an agency model of corporate behavior. Two issues are of interest in this context.