The Effects of Dividend Taxes on Equity Prices: A Re-examination of the 1997 UK Tax Reform
AbstractWe re-examine the extent to which personal taxes on dividends are capitalised into the equity prices of domestic firms, using data from around the time of the 1997 UK dividend tax reform, which removed a significant tax credit for an important group of investors: UK pension funds. The tax-adjusted CAPM suggests that the impact should depend on an average of dividend tax rates across all investors, and that UK pension funds should reduce their holdings of the previously tax-favoured asset: UK equities. Given that UK pension funds are small relative to the total size of the world capital market, a small open economy-type argument implies that the main effect of the reform would be to reduce UK pension funds’ ownership of UK equities, with little impact on the price of UK equities. We present evidence which is consistent with these hypotheses. We discuss why previous research (Bell and Jenkinson, 2002) reached the different conclusion that this tax reform had a large negative impact on UK share prices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0701.
Date of creation: 2007
Date of revision:
Contact details of provider:
Postal: Park End Street, Oxford OX1 1HP UK
Phone: +44 (0)1865 288800
Fax: +44 (0)1865 288805
Web page: http://www.sbs.ox.ac.uk/ideas-impact/tax/
More information through EDIRC
Other versions of this item:
- Stephen Bond & Alexander Klemm & Michael B. Devereux, 2007. "The Effects of Dividend Taxes on Equity Prices: A Re-examination of the 1997 U.K. Tax Reform," IMF Working Papers 07/204, International Monetary Fund.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Seppo Kari & Jussi Laitila, 2012. "Non-linear dividend tax and dynamics of the firm," Working Papers 41, Government Institute for Economic Research Finland (VATT).
- Michael P. Devereux, 2008.
"Taxation of outbound direct investment: economic principles and tax policy considerations,"
Oxford Review of Economic Policy,
Oxford University Press, vol. 24(4), pages 698-719, winter.
- Michael P Devereux, 2008. "Taxation of Outbound Direct Investment: Economic Principles and Tax Policy Considerations," Working Papers 0824, Oxford University Centre for Business Taxation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Li Liu).
If references are entirely missing, you can add them using this form.