Dividend Taxes, Firm Growth, and the Allocation of Capital

89 Pages Posted: 6 Jun 2022 Last revised: 24 Jun 2023

See all articles by Charles Boissel

Charles Boissel

HEC Paris - Finance Department

Adrien Matray

Princeton University

Date Written: June 2022


This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008- 2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to accumulate more capital and labor, resulting in higher revenues. Heterogeneity analyses show that firms with high demand and returns to capital responded most, while no group of treated firms reduced their capital. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes financial constraints, which can reduce capital misallocation.

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Suggested Citation

Boissel, Charles and Matray, Adrien, Dividend Taxes, Firm Growth, and the Allocation of Capital (June 2022). NBER Working Paper No. w30099, Available at SSRN: https://ssrn.com/abstract=4128590 or http://dx.doi.org/10.2139/ssrn.4128590

Charles Boissel (Contact Author)

HEC Paris - Finance Department ( email )

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

Adrien Matray

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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