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Dividends, Capital Gains, and the Corporate Veil: Evidence from Britain, Canada, and the United States

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James M. Poterba

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2975.

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Date of creation: Mar 1992
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Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER.
Handle: RePEc:nbr:nberwo:2975

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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.:
  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April. [Downloadable!] (restricted)
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  3. Feldstein, Martin S & Fane, George, 1973. "Taxes, Corporate Dividend Policy and Personal Savings: The British Postwar Experience," The Review of Economics and Statistics, MIT Press, vol. 55(4), pages 399-411, November. [Downloadable!] (restricted)
  4. Bagwell, Laurie Simon & Shoven, John B, 1989. "Cash Distributions to Shareholders," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 129-40, Summer. [Downloadable!] (restricted)
  5. Robert B. Avery & Gregory E. Elliehausen, 1986. "Financial characteristics of high-income families," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 163-177.
  6. Hendershott, Patric H & Peek, Joe, 1989. "Household Saving in the United States: Measurement and Behavior," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(1), pages 11-19, January.
  7. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
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  8. Campbell, John Y & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Review of Economic Studies, Blackwell Publishing, vol. 56(3), pages 357-73, July. [Downloadable!] (restricted)
  9. David, Paul A & Scadding, John L, 1974. "Private Savings: Ultrarationality, Aggregation, and "Denison's Law."," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 225-49, Part I, M. [Downloadable!] (restricted)
  10. Julian R. Franks & Robert S. Harris & Cohn Mayer, 1988. "Means of Payment in Takeovers: Results for the United Kingdom and the United States," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 221-264 National Bureau of Economic Research, Inc. [Downloadable!]
  11. Alan J. Auerbach & Kevin Hassett, 1991. "Corporate Savings and Shareholder Consumption," NBER Working Papers 2994, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  13. Feldstein, Martin S, 1970. "Corporate Taxation and Dividend Behaviour," Review of Economic Studies, Blackwell Publishing, vol. 37(1), pages 57-72, January. [Downloadable!] (restricted)
  14. Shefrin, Hersh M. & Statman, Meir, 1984. "Explaining investor preference for cash dividends," Journal of Financial Economics, Elsevier, vol. 13(2), pages 253-282, June. [Downloadable!] (restricted)
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  1. David Altig, 1990. "The case of the missing interest deductions: will tax reform increase U. S. saving rates?," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 22-34. [Downloadable!]
  2. Patrick Honohan, 1995. "The Impact of Financial and Fiscal Policies on Saving," Papers WP059, Economic and Social Research Institute (ESRI). [Downloadable!]
  3. Kevin A. Hassett & Gilbert E. Metcalf, 1998. "Investment With Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Discussion Papers Series, Department of Economics, Tufts University 9823, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  4. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics. [Downloadable!]
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