This paper presents new evidence on how corporate payout policy responds to the differential between the tax burden on dividend income and that on accruing capital gains. It describes the construction of weighted average marginal tax rate series for the period since 1929, and it suggests that the enactment of the Job Growth of Taxpayer Relief Reconciliation Act of 2003 should raise the after-tax value of dividends relative to capital gains by more than five percentage points. The impact of this change on payout depends on the elasticity of dividend payments with respect to the after-tax value of dividend income relative to capital gains. Time series estimates suggest an elasticity of more than three, and imply that the recent tax reform could ultimately increase dividends by almost twenty percent.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
10321.
Length: Date of creation: Feb 2004 Date of revision: Handle: RePEc:nbr:nberwo:10321
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Find related papers by JEL classification: H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Auerbach, Alan J., 2002.
"Taxation and corporate financial policy,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292
Elsevier.
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Roger Gordon & Martin Dietz, 2006.
"Dividends and Taxes,"
NBER Working Papers
12292, National Bureau of Economic Research, Inc.
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