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The Initial Impact of the 2003 Reduction in the Dividend Tax Rate

38 Pages Posted: 29 Nov 2003  

Jennifer L. Blouin

University of Pennsylvania - Accounting Department

Jana Smith Raedy

University of North Carolina at Chapel Hill

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

Date Written: October 2004

Abstract

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduces the maximum statutory personal tax rate on dividends from 38.1 percent to 15 percent. This study analyzes dividend declarations in the quarters surrounding passage. We find dramatic increases in regular dividends and special dividends after enactment and a decline in share repurchases. We find some evidence that the firms changing their distribution patterns are owned disproportionately by insiders. This finding is consistent with manager-owners modifying the firm's dividend policy to reflect the new tax-advantaged status of dividend income for individual investors.

Keywords: dividends, taxes, individual ownership

JEL Classification: M41, G35, G32, H24

Suggested Citation

Blouin, Jennifer L. and Raedy, Jana Smith and Shackelford, Douglas A., The Initial Impact of the 2003 Reduction in the Dividend Tax Rate (October 2004). Available at SSRN: https://ssrn.com/abstract=462542 or http://dx.doi.org/10.2139/ssrn.462542

Jennifer L. Blouin

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Jana Smith Raedy

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-7475 (Phone)
919-962-4727 (Fax)

Douglas A. Shackelford (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3197 (Phone)
919-962-4727 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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