Download This PaperThe Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax
57 Pages Posted: 25 Feb 2022
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The Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax
The Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax
Date Written: 2022
Abstract
We study the effect of stricter enforcement of the dividend-withholding tax (DWT). We focus on a 2016 Danish reform and compare Denmark to its Nordic neighbors. Firms in all countries exhibit strong spikes in stocks on loan around dividend dates. These spikes comprise several percent of the public float. The spikes are consistent with the most popular DWT arbitrage transactions. Postreform, spikes in Denmark disappear. Stricter enforcement results in an approximately 130 percent increase in annual DWT revenue. Stricter enforcement does not negatively affect the investment climate as measured through Danish stock returns, investment and dividend yield. Studying other European reforms, we find that the 2016-reform in Germany was similarly able to eliminate spikes in security lending.
Keywords: dividend tax arbitrage, tax enforcement, financial innovation, welfare analysis
JEL Classification: H250, H260, O160, F380
Suggested Citation: Suggested Citation
Evelina Gavrilova
Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )
Helleveien 30
Bergen, 5045
Norway
4741152047 (Phone)
David Joseph Murphy
NHH Norwegian School of Economics - Department of Business and Management Science ( email )
Helleveien 30
Bergen, NO-5045
Norway
HOME PAGE: http://https://www.nhh.no/en/employees/faculty/david-joseph-murphy/
