Working Paper: CEPR ID: DP17228
Authors: Charles Boissel; Adrien Matray
Abstract: This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms over 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints which can reduce capital misallocation.
Keywords: corporate taxes; capital misallocation
JEL Codes: G11; G32; H25; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2013 dividend tax increase (H24) | reduction in dividends among treated firms (G35) |
| reduction in dividends among treated firms (G35) | increase in investment (E22) |
| 2013 dividend tax increase (H24) | increase in investment (E22) |
| reduction in dividends among treated firms (G35) | increase in undistributed earnings (G35) |
| increase in undistributed earnings (G35) | increase in investment (E22) |
| 2013 dividend tax increase (H24) | increase in employment among treated firms (J68) |
| 2013 dividend tax increase (H24) | increase in wages paid to employees among treated firms (J33) |
| 2013 dividend tax increase (H24) | no increase in ownermanagers’ wages (J39) |
| increase in liquidity from reduced dividends (G35) | relaxation of credit constraints (E51) |
| relaxation of credit constraints (E51) | reduction in capital misallocation (D61) |