The Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax

We study the effect of stricter enforcement of the dividend-withholding tax (DWT). We focus on a 2016 Danish enforcement reform and compare Denmark to its Nordic neighbors. Throughout Nordic stock markets, shares on loan spike sharply around dividend dates. These spikes are consistent with so-called cum-cum and cum-ex trading. Post reform, spikes in Denmark disappear, and annual DWT revenue increases by 130 percent. Enforcement does not harm the investment climate, as measured by Danish stock returns, investment rate, and dividend yield.

Keywords: Tax Enforcement, Security Lending, Dividend Tax, Economic Effects

JEL Classification: K22, H26, G18, F23, M21

Suggested Citation: Suggested Citation

Casi-Eberhard, Elisa and Gavrilova, Evelina and Murphy, David and Zoutman, Floris, The Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax (August 15, 2023). TRR 266 Accounting for Transparency Working Paper Series No. 76, Available at SSRN: https://ssrn.com/abstract=4039744 or http://dx.doi.org/10.2139/ssrn.4039744