Anticipating Tax Change: Evidence from the Finnish Corporate Income Tax Reform of 2005

38 Pages Posted: 30 Jan 2008

See all articles by Seppo Juhani Kari

Seppo Juhani Kari

Government of the Republic of Finland - VATT Institute for Economic Research

Hanna Karikallio

Pellervo Economic Research Institute, Helsinki

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Date Written: January 2008

Abstract

Using register-based panel data covering all Finnish firms in 1999-2004, we examine how corporations anticipated the 2005 dividend tax increase via changes in their dividend and investment policies. The Finnish capital and corporate income tax reform of 2005 creates a useful opportunity to measure this behaviour, since it involves exogenous variation in the tax treatment of different types of firms. The estimation results reveal that those firms that anticipated a dividend tax hike increased their dividend payouts by 10-50 per cent. This increase was not accompanied by a reduction in investment activities, but rather was associated with increased indebtedness in non-listed firms. The results also suggest that the timing of dividend distributions probably offsets much of the potential for increased dividend tax revenue following the reform.

Keywords: corporate income taxation, dividends, tax reform, anticipation effects

JEL Classification: H25, H32

Suggested Citation

Kari, Seppo Juhani and Karikallio, Hanna and Pirttila, Jukka, Anticipating Tax Change: Evidence from the Finnish Corporate Income Tax Reform of 2005 (January 2008). CESifo Working Paper Series No. 2201. Available at SSRN: https://ssrn.com/abstract=1088630

Seppo Juhani Kari

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Hanna Karikallio

Pellervo Economic Research Institute, Helsinki ( email )

Eerikinkatu 28 A
Helsinki, 00180
Finland

Jukka Pirttila (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

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