With the significance of shareholder personal taxes for corporate financing decisions
under a classical tax system having been recognised (Miller, 1977), it is surprising that
much less attention appears to have been given to the effect of such taxes on corporate
investment decisions. From a shareholder’s point of view, current taxable dividends
may be preferable to corporate investment on which corporate taxes must be paid as
well as shareholder personal taxes on subsequent increased dividends. Incorporating
shareholder personal taxes into corporate investment analysis should also throw some
light on the perennial supply of tax-sheltered investment vehicles targeted towards
those facing high marginal tax rates.