The impact of dividend taxation on dividends and investment: New evidence based on a natural experiment

Seppo Kari, Hanna Karikallio and Jukka Pirttilä

No 9, Working Papers from VATT Institute for Economic Research

Abstract: There is a lack of clear evidence of the ways in which dividend taxation affects dividend distributions and investment and the evidence is based mainly on the behaviour of large listed companies. This paper utilises a large register-based panel data set, where the vast majority of firms are small and medium-sized enterprises, to examine the responses to the Finnish dividend tax increase of 2005. This reform creates a useful opportunity to measure enterprise behaviour, since it involves exogenous variation in the tax treatment of different types of firms. The results, based on difference-in-differences estimation and matching methods, indicate that dividends declined somewhat in closely held corporations that faced a tax increase, perhaps for timing reasons, while investments did not decline. These findings are more in line with the new rather than the old view of dividend taxation.

Keywords: Corporate income taxation; dividends; investment; tax reform; yritysverotus; osingot; investoinnit; verouudistus; Taxation; Verotus; Taxation and Social Transfers; Julkisen talouden rahoitus ja tulonsiirrot; H250 - Business Taxes and Subsidies including sales and value-added (VAT); H320 - Fiscal Policies and Behavior of Economic Agents: Firm (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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https://www.doria.fi/handle/10024/148748

Related works:
Working Paper: The Impact of Dividend Taxation on Dividends and Investment: New Evidence Based on a Natural Experiment (2009)
Working Paper: The Impact of Dividend Taxation on Dividends and Investment: New Evidence Based on a Natural experiment (2009)
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