Working Paper: NBER ID: w30099
Authors: 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 from 2008- 2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to accumulate more capital and labor, resulting in higher revenues. Heterogeneity analyses show that firms with high demand and returns to capital responded most, while no group of treated firms reduced their capital. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes financial constraints, which can reduce capital misallocation.
Keywords: No keywords provided
JEL Codes: G32; H2; H25; H32; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased dividend tax rate (G35) | Reduction in dividends (G35) |
| Reduction in dividends (G35) | Increase in free cash flow (G39) |
| Increase in free cash flow (G39) | Increase in capital accumulation (E22) |
| Increase in capital accumulation (E22) | Higher sales and value added (D46) |
| Higher sales and value added (D46) | Reduced probability of firm exit (D25) |
| Increased dividend tax rate (G35) | Increase in labor hiring (J23) |
| Increased dividend tax rate (G35) | Increase in average wages for employees (J31) |
| Increased dividend tax rate (G35) | No increase in own wages (J31) |
| Higher pre-reform dividend payments (G35) | Stronger reaction to tax reform (H32) |
| Increased dividend tax rate (G35) | Concentrated investment among firms with new growth opportunities (D25) |
| Increased dividend tax rate (G35) | Enhanced overall productivity (O49) |