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The Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax

Author

Listed:
  • Elisa Casi
  • Evelina Gavrilova
  • David Murphy
  • Floris T. Zoutman

Abstract

We study the effect of stricter enforcement of the dividend-withholding tax (DWT). We focus on a 2016 Danish enforcement reform and compare Denmark to its Nordic neighbors. Throughout the Nordic stock markets, shares on loan spike sharply around dividend dates. These spikes are consistent with abuse of the DWT system. Postreform, spikes in Denmark disappear, and annual DWT revenue increases by 130 percent. Enforcement does not harm the investment climate as measured by Danish stock returns, investment rate, and dividend yield.

Suggested Citation

  • Elisa Casi & Evelina Gavrilova & David Murphy & Floris T. Zoutman, 2026. "The Big Short (Interest): Closing the Loopholes in the Dividend-Withholding Tax," American Economic Journal: Economic Policy, American Economic Association, vol. 18(2), pages 275-308, May.
    • Handle: RePEc:aea:aejpol:v:18:y:2026:i:2:p:275-308
    DOI: 10.1257/pol.20230547
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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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