In light of the 1997 tax reform in Taiwan, this study examines the effects of the integration of individual and corporate tax (adopting the full imputation method) on shareholders' investment and firm's dividend decisions. These issues were addressed using a three-period game model. Eight experiments were also conducted to test the predictions of the model. The model and the experimental results generally support the government's arguments that the new tax system can encourage firm's new investments, motivate more equity financing, and discourage firm's retaining of earnings to avoid taxes.
