Transitional Dynamics of Dividend and Capital Gains Tax Cuts

Francois Gourio () and Jianjun Miao ()

Review of Economic Dynamics, 2011, vol. 14, issue 2, pages 368-383

Abstract: We develop a dynamic general equilibrium model to study the impact of the 2003 dividend and capital gains tax cuts. In the model, firms are heterogeneous in productivity and make investment and financing decisions subject to capital adjustment costs, equity issuance costs, and collateral constraints. We show that when the dividend and capital gains tax cuts are unexpected and permanent, dividend payments, equity issuance, and aggregate investment rise immediately. By contrast, when these tax cuts are unexpected and temporary, aggregate investment falls in the short run. This fall allows firms to distribute large dividends initially in response to the temporary dividend tax cut. We also find that the effects of a temporary dividend tax cut are very different from those of a temporary capital gains tax cut. (Copyright: Elsevier)

Keywords: Capital gains tax; Dividend tax policies; Investment and financial policies; Finance regimes; Collateral constraint; Intertemporal tax arbitrage (search for similar items in EconPapers)
JEL-codes: D92 E22 E62 G31 G32 H32 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2010.06.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Transitional Dynamics of Dividend and Capital Gains Tax Cuts" (2010)
Working Paper: Transitional Dynamics of Dividend and Capital Gains Tax Cuts (2010)
Working Paper: Technical Appendix to "Transitional Dynamics of Dividend and Capital Gains Tax Cuts" (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:red:issued:08-187

Ordering information: This journal article can be ordered from
http://www.EconomicDynamics.org/RED17.htm

Access Statistics for this article

Review of Economic Dynamics is edited by Gianluca Violante

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics
Address: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Contact information at EDIRC.
Series data maintained by Christian Zimmermann ().