The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

30 Pages Posted: 30 Aug 2010 Last revised: 20 Feb 2013

See all articles by Laura Kawano

Laura Kawano

University of Michigan at Ann Arbor

Date Written: February 15, 2013

Abstract

This paper provides evidence that dividend and capital gains tax rates importantly influence household portfolio choices. Using data from the Surveys of Consumer Finances around the 2003 dividend tax reductions, I estimate the relationship between taxes and household portfolio dividend yields. I find that a one percentage point decrease in the dividend tax rate relative to the long-term capital gains tax rate causes household portfolio dividend yields to increase by 0.04 percentage points. The results suggest that high income households significantly increased their portfolio dividend yields in responses to the 2003 dividend tax rate reductions.

Suggested Citation

Kawano, Laura, The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act (February 15, 2013). Available at SSRN: https://ssrn.com/abstract=1668158 or http://dx.doi.org/10.2139/ssrn.1668158

Laura Kawano (Contact Author)

University of Michigan at Ann Arbor ( email )

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