Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France

Adrien Matray and Charles Boissel
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Adrien Matray: Princeton University
Charles Boissel: HEC-Paris

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: This paper investigates how the 2013 three-fold increase in the dividend tax rate in France affected firms’ investment and performance. Using administrative data covering the universe of firms over 2008–2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly when facing high demand and return on capital. For every euro of undistributed dividends, firms increase their investment by 0.3 euro, leading to higher sales growth. Heterogeneity analyses show that no group of firms cut their investment, thereby rejecting models in which higher dividend taxes increase the cost of capital. Overall, our results show that the tax-induced increase in liquidity relaxes credit constraints and can reduce capital misallocation.

Keywords: France; Financing Policy; Business Taxes; Capital and Ownership Structure (search for similar items in EconPapers)
JEL-codes: G11 G32 H25 O16 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-eur, nep-fdg, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:276

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