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Dividends, Capital Gains And The Corporate Veil: Evidence From Britain, Canada And The United States

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  • POTERBA, J.M.

Abstract

This paper investigates the effects of increased cash dividend payout, and of "forced realizations~ of capital gains in corporate control transactions, on the level of aggregate consumption. The results support the proposition that investors respond differently to cash receipts from firms and to accruing capital gains. Consistent but weak evidence for the United States, Great Britain, and Canada suggests that higher dividend tax rates lower consumption. This is consistent with such tax rates increasing corporate saving, while households fail to completely pierce the corporate veil and therefore reduce their consumption. Time series evidence from the U.S. and the U.K. also suggests that "forced realizations" of capital gains in takeovers may spur consumption, indicating a relatively unexplored link between corporate financial decisions and aggregate consumption.
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  • Poterba, J.M., 1989. "Dividends, Capital Gains And The Corporate Veil: Evidence From Britain, Canada And The United States," Working Papers 3, John Deutsch Institute for the Study of Economic Policy.
    • Handle: RePEc:jdi:wpaper:3
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    Cited by:

    1. Hassett, Kevin A & Metcalf, Gilbert E, 1999. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Economic Journal, Royal Economic Society, vol. 109(457), pages 372-393, July.
    2. David E. Altig, 1990. "The case of the missing interest deductions: will tax reform increase U. S. saving rates?," Economic Review, Federal Reserve Bank of Cleveland, vol. 26(Q IV), pages 22-34.
    3. Jan Behringer & Till van Treeck, 2023. "The corporate sector and the current account," Oxford Economic Papers, Oxford University Press, vol. 75(3), pages 826-857.
    4. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Christian A Belabed & Thomas Theobald & Till van Treeck, 2018. "Income distribution and current account imbalances [Notes on capacity utilisation, distribution and accumulation]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(1), pages 47-94.
    6. Patrick Honohan, 1995. "The Impact of Financial and Fiscal Policies on Saving," Papers WP059, Economic and Social Research Institute (ESRI).
    7. Bent E. S¯rensen & Oved Yosha, 1996. "International Risk Sharing and European Monetary Unification," Working Papers 1996-30, Brown University, Department of Economics.
    8. Yannis A. Monogios & Christos Pitelis, 2004. "On (Ultra) rationality and the corporate and government veils," Manchester School, University of Manchester, vol. 72(3), pages 382-402, June.
    9. Sorensen, Bent E. & Yosha, Oved, 1998. "International risk sharing and European monetary unification," Journal of International Economics, Elsevier, vol. 45(2), pages 211-238, August.
    10. Michael Sumner, 2004. "Corporate Retentions and Consumers’ Expenditure," Manchester School, University of Manchester, vol. 72(1), pages 119-130, January.
    11. Theobald, Thomas & Grüning, Patrick & van Treeck, Till, 2015. "Income inequality and Germany's current account surplus," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112846, Verein für Socialpolitik / German Economic Association.
    12. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics.

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