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Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

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  • Francois Gourio
  • Jianjun Miao

Abstract

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15044.

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Date of creation: Jun 2009
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Handle: RePEc:nbr:nberwo:15044

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Citations

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Cited by:
  1. Holger Strulik & Timo Trimborn, 2011. "Laffer Strikes Again: Dynamic Scoring of Capital Taxes," DEGIT Conference Papers c016_074, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Juan Sebastián Amador Torres & José Eduardo Gómez G. & Andrés Murcia Pabón, 2013. "Loans Growth and Banks’ Risk: New Evidence," BORRADORES DE ECONOMIA 010710, BANCO DE LA REPÚBLICA.
  3. jae sim & Dalida Kadyrzhanova & Antonio Falato, 2013. "Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut," 2013 Meeting Papers 1151, Society for Economic Dynamics.
  4. Strulik, Holger & Trimborn, Timo, 2008. "Anticipated Tax Reforms and Temporary Tax Cuts: A General Equilibrium Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-406, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Seppo Kari & Jussi Laitila, 2012. "Non-linear dividend tax and dynamics of the firm," Working Papers 41, Government Institute for Economic Research Finland (VATT).
  6. Francois Gourio & Jianjun Miao, 2011. "Transitional Dynamics of Dividend and Capital Gains Tax Cuts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 368-383, April.
  7. Shalini Mitra, 2012. "Does Financial Development Cause Higher Firm Volatility and Lower Aggregate Volatility?," Working papers 2012-07, University of Connecticut, Department of Economics.
  8. Jason M. DeBacker, 2011. "Capital Taxes with Real and Financial Frictions," Working Papers 201402, Middle Tennessee State University, Department of Economics and Finance.
  9. Conesa, Juan C. & Domínguez, Begoña, 2013. "Intangible investment and Ramsey capital taxation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 983-995.
  10. Roc Armenter & Viktoria Hnatkovska, 2011. "The macroeconomics of firms' savings," Working Papers 12-1, Federal Reserve Bank of Philadelphia.
  11. Anagnostopoulos, Alexis & Cárceles-Poveda, Eva & Lin, Danmo, 2012. "Dividend and capital gains taxation under incomplete markets," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 599-611.
  12. Marika Santoro & Chao Wei, 2011. "Taxation, Investment and Asset Pricing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 443-454, July.

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