Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

Francois Gourio () and Jianjun Miao ()

No 15044, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent.

JEL-codes: E22 E62 G31 G35 H32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2009-06
Note: CF EFG PE
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