Working Paper: NBER ID: w21003
Authors: Danny Yagan
Abstract: This paper tests whether the 2003 dividend tax cut—one of the largest reforms ever to a U.S. capital tax rate—stimulated corporate investment and increased labor earnings, using a quasi-experimental design and U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment and employee compensation. Economically, the statistical precision challenges leading estimates of the cost-of-capital elasticity of investment, or undermines models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult to implement an alternative dividend tax cut that has substantially larger near-term effects.\n
Keywords: dividend tax cut; corporate investment; labor earnings; tax reform; cost of capital
JEL Codes: G31; G35; G38; H25; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2003 dividend tax cut (G35) | corporate investment (G31) |
| 2003 dividend tax cut (G35) | employee compensation (M52) |
| C-corporations and S-corporations (G39) | similar trends in absence of tax cut (H29) |