Follow the money! Why dividends overreact to flat-tax reforms

Laurent Bach, Antoine Bozio, Arthur Guillouzouic (), Claire Leroy and Clément Malgouyres
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Arthur Guillouzouic: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IPP - Institut des politiques publiques, Sciences Po - Sciences Po
Claire Leroy: IPP - Institut des politiques publiques, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We estimate behavioral responses to dividend taxation using recent French reforms: a rate hike followed, five years later, by a cut. Exploiting household and firm tax data as well as data linking firms and shareholders, we find very large dividend tax elasticities to both reforms. Individuals who control firms adjust dividend receipts instantaneously, accounting for most of the aggregate dividend reaction. Investment is insensitive to dividend taxation. Dividend adjustments are instead driven by corporate saving, as owner-managers treat firms as low-tax saving vehicles. Our results fit the ‘new view' of dividend taxation, provided an additional low-tax yet costly payout option is available that offers a tax arbitrage opportunity to entrepreneurs in control of their firms.

Keywords: Dividend tax; Corporate investment; Firm owner-managers (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-acc and nep-eur
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02415470v2
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Working Paper: Follow the money! Why dividends overreact to flat-tax reforms (2024)
Working Paper: Follow the money! Why dividends overreact to flat-tax reforms (2024)
Working Paper: Follow the money! Why dividends overreact to flat-tax reforms (2024)
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