Dividends, Capital Gains, and the Corporate Veil: Evidence from Britain, Canada, and the United States

36 Pages Posted: 5 Jan 2007 Last revised: 22 Aug 2010

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: May 1989

Abstract

This paper investigates the effects of increased cash dividend payout, and of "forced realizations~ of capital gains in corporate control transactions, on the level of aggregate consumption. The results support the proposition that investors respond differently to cash receipts from firms and to accruing capital gains. Consistent but weak evidence for the United States, Great Britain, and Canada suggests that higher dividend tax rates lower consumption. This is consistent with such tax rates increasing corporate saving, while households fail to completely pierce the corporate veil and therefore reduce their consumption. Time series evidence from the U.S. and the U.K. also suggests that "forced realizations" of capital gains in takeovers may spur consumption, indicating a relatively unexplored link between corporate financial decisions and aggregate consumption.

Suggested Citation

Poterba, James M., Dividends, Capital Gains, and the Corporate Veil: Evidence from Britain, Canada, and the United States (May 1989). NBER Working Paper No. w2975. Available at SSRN: https://ssrn.com/abstract=467570

James M. Poterba (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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