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Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France

Author

Listed:
  • Adrien Matray

    (Princeton University)

  • Charles Boissel

    (HEC-Paris)

Abstract

This paper investigates how the 2013 three-fold increase in the dividend tax rate in France affected firms’ investment and performance. Using administrative data covering the universe of firms over 2008–2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly when facing high demand and return on capital. For every euro of undistributed dividends, firms increase their investment by 0.3 euro, leading to higher sales growth. Heterogeneity analyses show that no group of firms cut their investment, thereby rejecting models in which higher dividend taxes increase the cost of capital. Overall, our results show that the tax-induced increase in liquidity relaxes credit constraints and can reduce capital misallocation.

Suggested Citation

  • Adrien Matray & Charles Boissel, 2020. "Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France," Working Papers 276, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:276
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    References listed on IDEAS

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    Cited by:

    1. Dautović, Ernest & Gambacorta, Leonardo & Reghezza, Alessio, 2023. "Supervisory policy stimulus: evidence from the euro area dividend recommendation," Working Paper Series 2796, European Central Bank.
    2. Michaël Sicsic, 2022. "Does labour income react more to income tax or means‐tested benefits reforms?," Fiscal Studies, John Wiley & Sons, vol. 43(3), pages 291-319, September.
    3. Atsushi Chino & Joon Ho Kim, 2022. "Does dividend policy affect sales growth in product markets? Evidence from the 2003 dividend tax cut," Financial Management, Financial Management Association International, vol. 51(2), pages 539-571, June.
    4. Fonseca, Julia & Van Doornik, Bernardus, 2022. "Financial development and labor market outcomes: Evidence from Brazil," Journal of Financial Economics, Elsevier, vol. 143(1), pages 550-568.
    5. Cameron LAPOINT & SAKABE Shogo, 2021. "Place-Based Policies and the Geography of Corporate Investment," Discussion papers 21059, Research Institute of Economy, Trade and Industry (RIETI).
    6. Jacob, Martin, 2021. "Dividend taxes, employment, and firm productivity," Journal of Corporate Finance, Elsevier, vol. 69(C).
    7. Marie-Noëlle Lefèbvre & Eddy Zanoutene, 2022. "Wealth and Income Responses to Dividend Taxation: Evidence from France," Working Papers hal-04104173, HAL.
    8. Marie-Noëlle Lefebvre & Eddy Zanoutene, 2022. "Wealth and Income Responses to Dividend Taxation : Evidence from France," TEPP Working Paper 2022-09, TEPP.

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    More about this item

    Keywords

    France; Financing Policy; Business Taxes; Capital and Ownership Structure;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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