Working Paper: CEPR ID: DP6005
Authors: Magnus Dahlquist; Gran Robertsson; Kristian Rydqvist
Abstract: We study a large data set of stock portfolios held by individuals and organizations in the Swedish stock market. The dividend yields on these portfolios are systematically related to investors' relative tax preferences for dividends versus capital gains. Tax-neutral investors earn 40 basis points higher dividend yield on their portfolios than investors which face higher effective taxation of dividends than capital gains. We conclude that there are dividend tax clienteles in the market. We also argue that the abundant portfolio holdings by closely-held corporations, despite triple taxation at a combined marginal tax rate as high as 77.5%, is a consequence of taxation.
Keywords: Capital Gains Tax; Dividend Tax Clienteles; Stock Ownership; Tax Incidence
JEL Codes: G11; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax-neutral investors (H24) | higher dividend yields (G35) |
| higher effective taxation on dividends (G35) | lower dividend yields (G35) |
| tax status (H20) | dividend yields (G35) |
| tax-neutral investors (H24) | existence of dividend tax clienteles (G35) |
| closely-held corporations (G30) | substantial stock portfolios (G11) |