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Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform

  • François Gourio

    ()

    (Department of Economics, Boston University)

  • Jianjun Miao

    ()

    (Department of Economics, Boston University)

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2008-002.

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Length: 49
Date of creation: Nov 2008
Date of revision:
Publication status: forthcoming, American Economic Journal: Macroeconomics
Handle: RePEc:bos:wpaper:wp2008-002
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Web page: http://www.bu.edu/econ/

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