As Uncertain as Taxes: Taxing Entrepreneurs in France

Abstract

We exploit one of the largest reform of dividend taxation in France in 2012 to estimate the effect of an increase in dividend tax rate on corporate policies, using administrative data covering the universe of firms and employees. In a difference-in-difference setting, we find that exposed firms swiftly cut dividend payments, both at the extensive and intensive margin, with an implied elasticity of -0:6. We find that treated firms build up considerable amount of cash reserves after reducing their dividend payment but do not change their investment policies. We report a precisely estimated null effect of dividend taxes on investment rate, with an implied elasticity around 0.04.