Template-Type: ReDIF-Paper 1.0
Title: The Power of Faith: Effects of an Imam-led Information Campaign on Labor Supply and Social Interactions
Author-Name: Salvatore Federico
Author-Email: s.federico@unibo.it 
Author-Name: Andrea Modena
Author-Email: andrea.modena@uni-mannheim.de
Author-Name: Luca Regis  
Author-Email: luca.regis@unito.it

Classification-JEL: G32; G35; G38
Keywords: Capital requirements; dividend bans; payout taxation; policy coordination;
stochastic control.

Abstract: We study the impact of state-contingent dividend taxes (and bans) and capital
regulation on a firm’s optimal strategy and value. In the model, the firm generates
stochastic income under time-varying macroeconomic conditions. Its manager distributes
dividends and issues costly equity to maximize shareholder value. We solve the
manager’s stochastic control problem and derive the firm’s reserve distribution in closed
form. Imposing dividend taxes (or bans) during crises generates a trade-off, as it encourages
reserve accumulation in bad states but promotes payouts in good ones. Also,
the policy undermines financial stability by reducing the firm’s value and its recapitalization
incentives across states. Coordinating dividend taxes with counter-cyclical
capital regulation can mitigate value losses and ameliorate the trade-off, but it also
creates additional recapitalization disincentives.

Note: 
Length: 45
Creation-Date: 2025-01
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp622
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_622