Dividend Taxes and the Allocation of Capital

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

Working Papers from Princeton University. Economics Department.

Abstract: This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008–2018 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints, which can reduce capital misallocation.

Keywords: 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: 2021-07
New Economics Papers: this item is included in nep-cfn and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2021-39

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