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Dividend Taxes, Firm Growth, and the Allocation of Capital

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  • Adrien Matray

Abstract

This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008- 2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to accumulate more capital and labor, resulting in higher revenues. Heterogeneity analyses show that firms with high demand and returns to capital responded most, while no group of treated firms reduced their capital. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes financial constraints, which can reduce capital misallocation.

Suggested Citation

  • Adrien Matray, 2022. "Dividend Taxes, Firm Growth, and the Allocation of Capital," NBER Working Papers 30099, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30099
    Note: CF PE
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    Cited by:

    1. Hillmann, Lisa, 2023. "Dividend taxation and the ownership structure of private firms," Journal of Corporate Finance, Elsevier, vol. 79(C).
    2. Eichfelder, Sebastian & Jacob, Martin & Schneider, Kerstin, 2023. "Do tax incentives affect investment quality?," Journal of Corporate Finance, Elsevier, vol. 80(C).
    3. Guillaume Coqueret, 2023. "Forking paths in financial economics," Papers 2401.08606, arXiv.org.
    4. Matteo Ghilardi & Roy Zilberman, 2022. "Macroeconomic Effects of Dividend Taxation with Investment Credit Limits," IMF Working Papers 2022/127, International Monetary Fund.
    5. Harju, Jarkko & Koivisto, Aliisa & Matikka, Tuomas, 2022. "The effects of corporate taxes on small firms," Journal of Public Economics, Elsevier, vol. 212(C).
    6. Jaqueline Hansen & Valeria Merlo & Georg Wamser, 2023. "Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches," CESifo Working Paper Series 10593, CESifo.
    7. Jacob, Martin & Vossebürger, Robert, 2022. "The role of personal income taxes in corporate investment decisions," Journal of Corporate Finance, Elsevier, vol. 77(C).
    8. Anagnostopoulos, Alexis & Atesagaoglu, Orhan Erem, 2023. "Shareholder tax cuts with household and firm heterogeneity," Finance Research Letters, Elsevier, vol. 57(C).

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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