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Do personal taxes affect investment decisions and stock returns?

Alex Kontoghiorghes ()
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Alex Kontoghiorghes: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 988, Bank of England working papers from Bank of England

Abstract: This paper studies the causal effects of personal investment taxes on stock demand, stock returns, and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in a capital gains and dividend tax-exempt investment account for the first time. Using a difference-in-differences approach, I find that stock demand temporarily doubled, long-run stock returns decreased by 2 percentage points per month, dividend payments increased by 29%, and that the capital structure and shareholder composition permanently changed post-legislation.

Keywords: Personal investment taxes; tax capitalisation; dividend policy; capital structure (search for similar items in EconPapers)
JEL-codes: G11 G12 G18 G32 G35 H24 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2022-07-21
New Economics Papers: this item is included in nep-cfn and nep-pbe
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