Tax Changes and Asset Pricing
55 Pages Posted: 29 Nov 2003 Last revised: 7 Jul 2008
Date Written: June 30, 2008
This paper investigates whether investors were compensated for the tax burden of equity securities over the time period between 1913 and 2006. Effective tax rates on equity securities vary over time due to changes in tax rates on dividends and capital gains and due to changes in corporate payout policies. Effective tax rates also vary cross-sectionally due to persistent differences in propensities to pay dividends, which tend to be taxed more heavily than capital gains. The results indicate an economically plausible and statistically significant tax capitalization over time and cross-sectionally.
Keywords: Tax Capitalization, Stock Returns, Stock Valuations
JEL Classification: G12, H20, E44
Suggested Citation: Suggested Citation