TAXES, CORPORATE FINANCIAL POLICY AND INVESTMENT DECISIONS IN AUSTRALIA

This paper presents a formal model of an optimizing firm to examine in centives provided by Australia's full imputation scheme in combination with its capital gains tax provisions. It explores how the tax system affects optimal dividend and financial policy. It derives an expressi on for the cost of capital for corporate investment which takes accoun t of the way in which corporate tax payments influence firms' ability to pay franked dividends and examines how this is affected by capital gains taxation.