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Neutral Taxation of Shareholder Income? Corporate Responses to an Announced Dividend Tax

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  • Annette Alstadsæter
  • Erik Fjaerli

Abstract

The introduction of the 2006 Norwegian shareholder income tax was announced in advance, and it increased top marginal tax rates on individual dividend income from zero to 28 percent. We document strong timing effects on dividend payout on a large panel of non-listed corporations, with a surge of dividends prior to 2006 and a sharp drop after. Mature firms are more likely to pay dividends, and high asset growth increases the probability of retaining all earnings. Intertemporal income shifting through the timing of dividends seems to be a drain on internal equity and cause increases in the corporations’ debt-equity ratios. The debt ratios drop sharply after the implementation of the reform.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-01/cesifo1_wp2530.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2530.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2530

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Keywords: neutral dividend tax; dual income tax; intertemporal income shifting; anticipation effects; corporate financial policy; transition;

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Citations

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Cited by:
  1. Seppo Kari & Hanna Karikallio & Jukka Pirttilä, 2009. "The Impact of Dividend Taxation on Dividends and Investment: New Evidence Based on a Natural Experiment," CESifo Working Paper Series 2756, CESifo Group Munich.
  2. Chris Edson, 2012. "The capital constraining effects of the norwegian wealth tax," Discussion Papers 724, Research Department of Statistics Norway.
  3. Seppo Kari & Jussi Laitila, 2012. "Non-linear dividend tax and dynamics of the firm," Working Papers 41, Government Institute for Economic Research Finland (VATT).

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