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

56 Pages Posted: 11 Jul 2019 Last revised: 14 Oct 2020

See all articles by Charles Boissel

Charles Boissel

HEC Paris - Finance Department

Adrien Matray

Princeton University

Date Written: July 10, 2019

Abstract

This paper investigates how the 2013 three-fold increase in the dividend tax rate in France affected firms' investment and performance. Using administrative data covering the universe of firms over 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly so when facing high demand and high return on capital. For every euro of undistributed dividends, firms increase their investment by 0.3 euro, leading to higher sales growth. Heterogeneity analysis fails to find any group of firms cutting their investment, thereby rejecting models in which higher dividend taxes increase the cost of capital. Overall, our results suggest that entrepreneurs are credit constrained, despite paying dividends and hold insufficient liquidity to seize all profitable investment opportunities.

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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