Taxation and the Evolution of Aggregate Corporate Ownership Concentration

40 Pages Posted: 23 Jun 2005  

Dhammika Dharmapala

University of Chicago Law School

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Winnie Fung

Harvard University - Department of Economics; Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

Legal rules, politics and behavioral factors have all been emphasized as explanatory factors in analyses of the determinants of the concentration of corporate ownership and stock market participation. An extension of standard tax clientele arguments demonstrates that changes in the progressivity of taxes can also significantly influence patterns of equity ownership. A novel index of the concentration of corporate ownership over the twentieth century in the U.S. provides the opportunity to quantitatively test for the role of taxes in shaping ownership concentration. The index of ownership concentration is characterized by considerable time series variation, with significant diffusion of ownership in the post WWII era and reconcentration in the late 1990s. Analysis of this index indicates that the progressivity of taxation significantly influences corporate ownership concentration and equity market participation as predicted by the model. This evidence supports the intuition of Berle and Means (1932) that taxation can significantly influence patterns of equity ownership.

Keywords: Taxes, corporate governance, equity market participation

JEL Classification: G30, G32, H24

Suggested Citation

Dharmapala, Dhammika and Desai, Mihir A. and Fung, Winnie, Taxation and the Evolution of Aggregate Corporate Ownership Concentration (December 2005). Available at SSRN: https://ssrn.com/abstract=746945 or http://dx.doi.org/10.2139/ssrn.746945

Dhammika Dharmapala

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Mihir A. Desai (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

Winnie Fung

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Harvard Business School

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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