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The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

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  • Laura Kawano

Abstract

This paper provides evidence that dividend and capital gains tax rates importantly influence household portfolio choices. Using data from the Surveys of Consumer Finances around the 2003 dividend tax reductions, I estimate the relationship between taxes and household portfolio dividend yields. I find that a one percentage point decrease in the dividend tax rate relative to the long-term capital gains tax rate causes household portfolio dividend yields to increase by 0.04 percentage points. The results suggest that high income households significantly increased their portfolio dividend yields in response to the 2003 dividend tax rate reductions.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 6 (2014)
Issue (Month): 1 (February)
Pages: 114-36

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Handle: RePEc:aea:aejpol:v:6:y:2014:i:1:p:114-36

Note: DOI: 10.1257/pol.6.1.114
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  1. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February.
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Cited by:
  1. Laura Kawano, 2014. "The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 114-36, February.

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