Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France

61 Pages Posted: 11 Jul 2019 Last revised: 19 Sep 2019

See all articles by Charles Boissel

Charles Boissel

HEC Paris - Finance Department

Adrien Matray

Princeton University

Date Written: July 10, 2019

Abstract

We exploit a large increase in the dividend tax rate in France that affected three-quarter of firms to estimate the effect of dividend taxation on corporate policies. Using administrative data covering the universe of firms and employees, we find in a differences-in-differences setting that affected firms swiftly cut dividends, both at the extensive and intensive margin, with an implied elasticity of around -0.6. Part of the resulting cash retention is used to increase investment and employment, with a positive elasticity around +0.20. The rest is accumulated as liquidity and used to extend credit to customers. Newly-taxed entrepreneurs do not appear to engage in income shifting to evade tax increase.

Suggested Citation

Boissel, Charles and Matray, Adrien, Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France (July 10, 2019). Available at SSRN: https://ssrn.com/abstract=3418014 or http://dx.doi.org/10.2139/ssrn.3418014

Charles Boissel

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Adrien Matray (Contact Author)

Princeton University ( email )

Bendheim Center for Finance
26 Prospect Avenue
Princeton, NJ 08540
United States

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