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Do Dividend Taxes Affect Corporate Investment?

FAccT Center Working Paper Nr. 15/2014

39 Pages Posted: 23 Jul 2014 Last revised: 21 Jan 2015

Annette Alstadsæter

School of Economics and Business, NMBU

Martin Jacob

WHU - Otto Beisheim School of Management

Roni Michaely

Johnson@Cornell Tech, Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: January 8, 2015

Abstract

We test whether dividend taxes affect corporate investments. We exploit Sweden’s 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut does not affect aggregate investment but that it affects the allocation of corporate investment. Cash-constrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher external equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment.

Keywords: Investment, Dividend Taxation, Private Firms

JEL Classification: G30, G31, H25

Suggested Citation

Alstadsæter, Annette and Jacob, Martin and Michaely, Roni, Do Dividend Taxes Affect Corporate Investment? (January 8, 2015). FAccT Center Working Paper Nr. 15/2014. Available at SSRN: https://ssrn.com/abstract=2469680 or http://dx.doi.org/10.2139/ssrn.2469680

Annette Alstadsaeter

School of Economics and Business, NMBU ( email )

P.O. Box 5003
NO-1432 Aas
Norway

HOME PAGE: http://www.nmbu.no/emp/annette.alstadsater

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Roni Michaely

Johnson@Cornell Tech, Cornell University ( email )

111 8th Avenue #302
New York, NY 10011
United States

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