The Dividend Tax Credit and Canadian Ownership Objectives

Abstract

This paper discusses the role of the dividend tax credit in determining the Canadian ownership pattern of Canadian industry. The analytic tool used is the capital-asset pricing model extended to include differential taxation of dividen ds and capital-gains income across different countries. The paper finds that changes in the dividend tax credit will have a differential impact on Canadian ownership, depending on sectoral differences in dividend yields and variances of rates of return, and the correlation structure. Empirical simulation of the model suggests that the effects are significant.