This paper shows that while the Korean corporate tax rate is relatively low compared to other major economies, the ratio of corporate tax income to GDP is relatively high. In particular, as the dividend capacity of listed companies, i.e. profitability and cash-flow, deteriorates the corporate investment in Korea could shrink on the reduction in the dividend tax rate.

In addition, it is shown using a theoretical model that the reduction on the corporate tax rate affects the investment and dividend policy the most by allowing managers to take advantage of or Tunnelings from the corporate cash holdings. However, the dividend tax cut expands the dividend income but has a negative effect on the whole economy. On the other hand, the impact of the corporate tax cut increases under corporate governance that does not have managerial Tunnelings because healthy governance without managerial private incentives reduces the relationship between investment and cash equivalents, and dividends and cash equivalents. Thus, policy makers should focus on improving the fundamental business environment rather than short-term stimulus such as a temporary corporate income tax cut or dividend tax cut.

Finally, this paper investigates the impact of financial variables and corporate tax cuts on dividend and investment policies by using a reduced model. The empirical results show that corporate cash holdings, cash flow, sales growth and average effective tax rate influence corporate investment. Also, it is shown that the dividend payout ratio at the previous period, cash flow, and average effective tax rate affect the dividend payout ratio

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Corporate Tax Policy
　Section 1 Previous Discussions on Corporate Tax Policy
　Section 2 Comparison of Corporate Activities and Tax Systems Across Countries
　Section 3 Tax Policies for Household Income Growth
　Section 4 Summary and Policy Implications

Chapter 3 Corporate Decision-Making Model
　Section 1 Theoretical Background
　Section 2 Corporate Decision-Making Model
　Section 3 Changes in Corporate Decision-Making Due to Tax Reforms
　Section 4 Evaluation of the Corporate Decision-Making Model

Chapter 4 Corporate Activity Simulation Under Tax Reform
　Section 1 Simulation Methodology
　Section 2 Assumptions on Tax Reform
　Section 3 Simulation Results on Corporate Activity Under Tax Reform
　Section 4 Summary and Policy Implications

Chapter 5 Effects of Corporate Tax on Investment and Dividends
　Section 1 Theoretical Background for Empirical Analysis
　Section 2 Empirical Methodology and Results
　Section 3 Summary and Policy Implications

Chapter 6 Conclusion and Policy Recommendations

References
Appendix
ABSTRACT