FAccT Center Working Paper Nr. 15/2014
39 Pages Posted: 23 Jul 2014 Last revised: 21 Jan 2015
Date Written: January 8, 2015
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: 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