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Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform

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Author Info
François Gourio () (Department of Economics, Boston University)
Jianjun Miao () (Department of Economics, Boston University)
Abstract

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent.

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Publisher Info
Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2008-002.

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Length: 49
Date of creation: Nov 2008
Date of revision:
Publication status: forthcoming, American Economic Journal: Macroeconomics
Handle: RePEc:bos:wpaper:wp2008-002

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Related research
Keywords: firm heterogeneity; finance regime; dividend tax reform; general equilibrium;

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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References listed on IDEAS
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  13. Loughran, Tim & Ritter, Jay R, 1997. " The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-50, December. [Downloadable!] (restricted)
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