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

Fiscal Studies; 29(2):167-196. (2008) DOI: 10.1111/j.1475-5890.2008.00072.x

Posted: 6 Sep 2014

See all articles by Jukka Pirttila

Jukka Pirttila

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

Seppo Juhani Kari

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

Hanna Karikallio

Pellervo Economic Research Institute, Helsinki

Date Written: May 2008

Abstract

Using register-based panel data covering all Finnish firms from 1999 to 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 in a statistically significant way. 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.

Suggested Citation

Pirttila, Jukka and Kari, Seppo Juhani and Karikallio, Hanna, Anticipating Tax Changes: Evidence from the Finnish Corporate Income Tax Reform of 2005 (May 2008). Fiscal Studies; 29(2):167-196. (2008) DOI: 10.1111/j.1475-5890.2008.00072.x . Available at SSRN: https://ssrn.com/abstract=2491782

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

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

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