Dividends and Taxation: A Preliminary Investigation

Tim Callen, Steven Morling and Jill Pleban
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Tim Callen: Reserve Bank of Australia
Steven Morling: Reserve Bank of Australia
Jill Pleban: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: Several recent tax changes have increased the incentive for companies to pay dividends compared to retaining earnings. These are the introduction of the Capital Gains Tax (CGT), dividend imputation and the taxation of the earnings of superannuation funds. In this paper we examine the determinants of a company’s dividend policy and within this framework look at how these tax changes have influenced dividend payments. We present some empirical results that suggest that both cash flow and tax considerations are significant determinants of dividend behaviour. Real dividends per share increased by about 38 per cent between 1985/86 and 1990/91. We estimate that the tax changes account for a rise in real dividends per share of about 20 per cent during that period.

Date: 1992-10
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp9211

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