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

Author

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  • François Gourio

    () (Department of Economics, Boston University)

  • Jianjun Miao

    () (Department of Economics, Boston University)

Abstract

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.

Suggested Citation

  • François Gourio & Jianjun Miao, 2008. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," Boston University - Department of Economics - Working Papers Series wp2008-002, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2008-002
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    Cited by:

    1. Jiang, Lunan, 2015. "Dividend Taxes, Household Heterogeneity, and the US Great Depression," MPRA Paper 77029, University Library of Munich, Germany.
    2. Anagnostopoulos, Alexis & Cárceles-Poveda, Eva & Lin, Danmo, 2012. "Dividend and capital gains taxation under incomplete markets," Journal of Monetary Economics, Elsevier, pages 599-611.
    3. Juan Amador & José Gómez-González & Andrés Pabón, 2013. "Loan growth and bank risk: new evidence," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, pages 365-379.
    4. Roc Armenter & Viktoria Hnatkovska, 2011. "The macroeconomics of firms' savings," Working Papers 12-1, Federal Reserve Bank of Philadelphia.
    5. Chen, Peter & Karabarbounis, Loukas & Neiman, Brent, 2017. "The global rise of corporate saving," Journal of Monetary Economics, Elsevier, pages 1-19.
    6. Strulik, Holger & Trimborn, Timo, 2012. "Laffer strikes again: Dynamic scoring of capital taxes," European Economic Review, Elsevier, pages 1180-1199.
    7. Antonio Falato & Dalida Kadyrzhanova & Jae W. Sim, 2013. "Rising intangible capital, shrinking debt capacity, and the US corporate savings glut," Finance and Economics Discussion Series 2013-67, Board of Governors of the Federal Reserve System (U.S.).
    8. Seppo Kari & Jussi Laitila, 2015. "Nonlinear Dividend Tax and the Dynamics of the Firm," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, pages 153-177.
    9. Russell W. Cooper & Immo Schott, 2013. "Capital Reallocation and Aggregate Productivity," NBER Working Papers 19715, National Bureau of Economic Research, Inc.
    10. repec:eee:moneco:v:87:y:2017:i:c:p:13-33 is not listed on IDEAS
    11. Francois Gourio & Jianjun Miao, 2011. "Transitional Dynamics of Dividend and Capital Gains Tax Cuts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 368-383, April.
    12. Alexis Anagnostopoulos & Orhan Erem Atesagaoglu & Eva Carceles-Poveda, 2014. "On the Double Taxation of Corporate Profits," Department of Economics Working Papers 14-03, Stony Brook University, Department of Economics.
    13. Winter, Christoph & Kraus, Beatrice, 2016. "Do Tax Changes Affect Credit Markets and Financial Frictions? Evidence from Credit Spreads," Annual Conference 2016 (Augsburg): Demographic Change 145636, Verein für Socialpolitik / German Economic Association.
    14. Juan Amador & José Gómez-González & Andrés Pabón, 2013. "Loan growth and bank risk: new evidence," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, pages 365-379.
    15. Strulik, Holger & Trimborn, Timo, 2010. "Anticipated tax reforms and temporary tax cuts: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, pages 2141-2158.
    16. Loukas Karabarbounis & Brent Neiman, 2012. "Declining Labor Shares and the Global Rise of Corporate Saving," NBER Working Papers 18154, National Bureau of Economic Research, Inc.
    17. Marika Santoro & Chao Wei, 2011. "Taxation, Investment and Asset Pricing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 443-454, July.
    18. Jason M. DeBacker, 2011. "Capital Taxes with Real and Financial Frictions," Working Papers 201402, Middle Tennessee State University, Department of Economics and Finance.
    19. Francois Gourio & Jianjun Miao, 2011. "Transitional Dynamics of Dividend and Capital Gains Tax Cuts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 368-383, April.
    20. Conesa, Juan C. & Domínguez, Begoña, 2013. "Intangible investment and Ramsey capital taxation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 983-995.
    21. Shalini Mitra, 2012. "Does Financial Development Cause Higher Firm Volatility and Lower Aggregate Volatility?," Working papers 2012-07, University of Connecticut, Department of Economics.

    More about this item

    Keywords

    firm heterogeneity; finance regime; dividend tax reform; general equilibrium;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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