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Dividend Taxes and the Allocation of Capital

Author

Listed:
  • Charles Boissel

    (HEC Paris)

  • Adrien Matray

    (Princeton University and CEPR)

Abstract

This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008–2018 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints, which can reduce capital misallocation.

Suggested Citation

  • Charles Boissel & Adrien Matray, 2021. "Dividend Taxes and the Allocation of Capital," Working Papers 2021-39, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2021-39
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    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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