Anticipating Tax Changes: Evidence from the Finnish Corporate Income Tax Reform of 2005*

Seppo Kari, Hanna Karikallio and Jukka Pirttilä

Fiscal Studies, 2008, vol. 29, issue 2, 167-196

Abstract: Using register-based panel data covering all Finnish firms from 1999 to 2004, we examine how corporations anticipated the 2005 dividend tax increase via changes in their dividend and investment policies. The Finnish capital and corporate income tax reform of 2005 creates a useful opportunity to measure this behaviour, since it involves exogenous variation in the tax treatment of different types of firms. The estimation results reveal that those firms that anticipated a dividend tax hike increased their dividend payouts in a statistically significant way. This increase was not accompanied by a reduction in investment activities, but rather was associated with increased indebtedness in non-listed firms. The results also suggest that the timing of dividend distributions probably offsets much of the potential for increased dividend tax revenue following the reform. Copyright (c) 2008 The Authors Journal compilation (c) Institute for Fiscal Studies, 2008.

Date: 2008
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Working Paper: Anticipating Tax Change: Evidence from the Finnish Corporate Income Tax Reform of 2005 (2008)
Working Paper: Anticipating Tax Changes: Evidence from the Finnish Corporate Income Tax Reform of 2005 (2008)
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