Dividend Taxes, Firm Growth, and the Allocation of Capital

Abstract

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.

Taxes, Profit Shifting, and the Real Activities of Mnes: Evidence from Corporate Tax Notches

“…This finding is consistent with , Boissel and Matray (2022), and Matray (2023), showing that a tax-induced increase in liquidity may lead to a larger accumulation of capital and labor. What we cannot say from these estimates is whether this behavior is efficient or not.…”

“…Egger et al, 2014;de Mooij and Liu, 2021;Suárez Serrato, 2018). 26 On the other hand, the increase in cash flow in the "new" profit shifting destinations may lead to more investment (for similar arguments and findings, see Boissel and Matray, 2022;Matray, 2023).…”

Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

“…The tax rise tightens the credit constraint and brings about a magni…ed decline in investment, labor, and output when compared to the dynamics following the same size tax cut that temporarily switches the credit regime from binding to slack. Albeit quantitatively modest, our model does capture the potentially asymmetric dynamic responses of …nancial and real variables following unexpected temporary dividend tax changes (see also Boissel and Matray (2022)).…”

“…which approximately correspond with average long-run e¤ective U.S. corporate and labor income tax rates, respectively. 10 Proposition 1 The dividend tax rate D and the borrowing limit determine whether an economy is subject to a constrained or a slack equilibrium. In particular:…”

Wealth Taxation and Charitable Giving

“…2 Literature. Our paper contributes to a growing empirical literature on the effects of capital taxation (see, e.g., Lavecchia and Tazhitdinova 2021;Agersnap and Zidar 2021;Glogowsky 2021;Nekoei and Seim 2018;Martínez-Toledano 2020;Boissel and Matray 2021;Arefeva et al 2021;Agrawal et al 2020), and in particular, the literature on household responses to wealth taxation (Seim 2017;Zoutman 2018;Durán-Cabré et al 2019;Londoño-Vélez and Ávila-Mahecha 2020a;Londoño-Vélez and Ávila-Mahecha 2020b;Jakobsen et al 2020;Brülhart et al 2021;Ring 2020;Berg and Hebous 2021). Our main contribution to this literature is to consider the effect on charitable giving.…”