Do Dividend Taxes Affect Corporate Investment

34 Pages Posted: 16 Sep 2014

See all articles by Annette Alstadsæter

Annette Alstadsæter

School of Economics and Business, NMBU

Martin Jacob

WHU - Otto Beisheim School of Management

Roni Michaely

The University of Hong Kong; ECGI

Multiple version iconThere are 2 versions of this paper

Date Written: November 2014

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 affects 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 nominal 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: G300, G310, H250

Suggested Citation

Alstadsaeter, Annette and Jacob, Martin and Michaely, Roni, Do Dividend Taxes Affect Corporate Investment (November 2014). CESifo Working Paper Series No. 4931, Available at SSRN: https://ssrn.com/abstract=2496340 or http://dx.doi.org/10.2139/ssrn.2496340

Annette Alstadsaeter

School of Economics and Business, NMBU ( email )

Norwegian University of Life Sciences
As
Norway

HOME PAGE: http://https://sites.google.com/view/annettealstadsater/start

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

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
274
Abstract Views
3,225
rank
264,114
PlumX Metrics