The Effects of Dividend Taxeson Equity Prices
AbstractWe re-examine the extent to which personal taxes on dividends are capitalized into the equity prices of domestic firms, using data from around the time of the 1997 U.K. dividend tax reform, which removed a significant tax credit for an important group of investors: U.K. pension funds. The tax-adjusted CAPM suggests that the impact should depend on an average of dividend tax rates across all investors, and that U.K. pension funds should reduce their holdings of the previously tax-favored asset: U.K. equities. Given that U.K. 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 U.K. pension funds'' ownership of U.K. equities, with little impact on their price. We present evidence which is consistent with these hypotheses. We discuss why previous research (Bell and Jenkinson, 2002) reached a different conclusion.
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Date of creation: 01 Aug 2007
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-05 (All new papers)
- NEP-CFN-2008-01-05 (Corporate Finance)
- NEP-PBE-2008-01-05 (Public Economics)
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- Tobias Lindhe & Jan Södersten, 2012.
"The Norwegian shareholder tax reconsidered,"
International Tax and Public Finance,
Springer, vol. 19(3), pages 424-441, June.
- Södersten, Jan & Lindhe, Tobias, 2010. "The Norwegian Shareholder Tax Reconsidered," Working Paper Series, Center for Fiscal Studies 2010:4, Uppsala University, Department of Economics.
- Södersten, Jan & Lindhe, Tobias, 2011. "The Norwegian Shareholder Tax Reconsidered," Working Paper Series 2011:6, Uppsala University, Department of Economics.
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