IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Neutral Taxation of Shareholder Income? Corporate Responses to an Announced Dividend Tax

  • Annette Alstadsæter
  • Erik Fjaerli

The introduction of the 2006 Norwegian shareholder income tax was announced in advance, and it increased top marginal tax rates on individual dividend income from zero to 28 percent. We document strong timing effects on dividend payout on a large panel of non-listed corporations, with a surge of dividends prior to 2006 and a sharp drop after. Mature firms are more likely to pay dividends, and high asset growth increases the probability of retaining all earnings. Intertemporal income shifting through the timing of dividends seems to be a drain on internal equity and cause increases in the corporations’ debt-equity ratios. The debt ratios drop sharply after the implementation of the reform.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-01/cesifo1_wp2530.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2530.

as
in new window

Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2530
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Roger Gordon & Martin Dietz, 2006. "Dividends and Taxes," NBER Working Papers 12292, National Bureau of Economic Research, Inc.
  2. Alan J. Auerbach & Kevin A. Hassett, 2006. "Dividend Taxes and Firm Valuation: New Evidence," American Economic Review, American Economic Association, vol. 96(2), pages 119-123, May.
  3. Thor O. Thoresen, 2004. "Reduced Tax Progressivity in Norway in the Nineties: The Effect from Tax Changes," International Tax and Public Finance, Springer, vol. 11(4), pages 487-506, 08.
  4. Seppo Kari & Hanna Karikallio & Jukka Pirttilä, 2008. "Anticipating Tax Change: Evidence from the Finnish Corporate Income Tax Reform of 2005," CESifo Working Paper Series 2201, CESifo Group Munich.
  5. James M. Poterba & Lawrence H. Summers, 1984. "The Economic Effects of Dividend Taxation," Working papers 343, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
  7. Thor Olav Thoresen & Annette Alstadsæter, 2008. "Shifts in Organizational Form under a Dual Income Tax System," CESifo Working Paper Series 2273, CESifo Group Munich.
  8. B. Douglas Bernheim & Adam Wantz, 1992. "A Tax-Based Test of the Dividend Signaling Hypothesis," NBER Working Papers 4244, National Bureau of Economic Research, Inc.
  9. Eugene F. Fama & Kenneth R. French, . "Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?."," CRSP working papers 509, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  10. James Poterba, 2004. "Taxation and Corporate Payout Policy," American Economic Review, American Economic Association, vol. 94(2), pages 171-175, May.
  11. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Journal of Public Economics, Elsevier, vol. 45(3), pages 271-300, August.
  12. Jeffrey MacKie-Mason, 1988. "Do Taxes Affect Corporate Financing Decisions?," NBER Working Papers 2632, National Bureau of Economic Research, Inc.
  13. Hines, James R, Jr, 1996. " Dividends and Profits: Some Unsubtle Foreign Influences," Journal of Finance, American Finance Association, vol. 51(2), pages 661-89, June.
  14. Annette Alstadsaeter, 2007. "The Achilles Heel of the Dual Income Tax: The Norwegian Case," Finnish Economic Papers, Finnish Economic Association, vol. 20(1), pages 5-22, Spring.
  15. Alon Brav & John R. Graham & Campbell R. Harvey & Roni Michaely, 2003. "Payout Policy in the 21st Century," NBER Working Papers 9657, National Bureau of Economic Research, Inc.
  16. Korinek, Anton & Stiglitz, Joseph E., 2009. "Dividend taxation and intertemporal tax arbitrage," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 142-159, February.
  17. Aarbu, Karl O. & Thoresen, Thor O., 2001. "Income Responses to Tax Changes--Evidence from the Norwegian Tax Reform," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 319-38, June.
  18. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
  19. Peter Birch Sørensen, 2005. "Dual Income Taxation: Why and how?," CESifo Working Paper Series 1551, CESifo Group Munich.
  20. Franklin Allen & Roni Michaely, 2002. "Payout Policy," Center for Financial Institutions Working Papers 01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Allen, Franklin & Michaely, Roni, 2003. "Payout policy," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429 Elsevier.
  21. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
  22. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 791-833, August.
  23. Jukka Pirttilä & Håkan Selin, 2006. "How Successful is the Dual Income Tax? Evidence from the Finnish Tax Reform of 1993," CESifo Working Paper Series 1875, CESifo Group Munich.
  24. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  25. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  26. Annette Alstadsæter & Knut Reidar Wangen, 2008. "Corporations’ Choice of Tax Regime when Transition Costs are Small and Income Shifting Potential is Large," CESifo Working Paper Series 2392, CESifo Group Munich.
  27. Tobias Lindhe & Jan Södersten & Ann �berg, 2004. "Economic Effects of Taxing Different Organizational Forms under the Nordic Dual Income Tax," International Tax and Public Finance, Springer, vol. 11(4), pages 469-485, 08.
  28. Robin Boadway, 2004. "The Dual Income Tax System - An Overview," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 2(3), pages 03-08, October.
  29. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  30. Peter Sørensen, 1994. "From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries," International Tax and Public Finance, Springer, vol. 1(1), pages 57-79, February.
  31. Auerbach, Alan J, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 433-46, August.
  32. Malcolm Baker & Jeffrey Wurgler, 2004. "A Catering Theory of Dividends," Journal of Finance, American Finance Association, vol. 59(3), pages 1125-1165, 06.
  33. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  34. King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
  35. Peter Sørensen, 2005. "Neutral Taxation of Shareholder Income," International Tax and Public Finance, Springer, vol. 12(6), pages 777-801, November.
  36. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J., 2004. "Are dividends disappearing? Dividend concentration and the consolidation of earnings," Journal of Financial Economics, Elsevier, vol. 72(3), pages 425-456, June.
  37. Alvarez, Luis H. R. & Kanniainen, Vesa & Sodersten, Jan, 1998. "Tax policy uncertainty and corporate investment: A theory of tax-induced investment spurts," Journal of Public Economics, Elsevier, vol. 69(1), pages 17-48, July.
  38. Steve Bond & Michael Devereux & Alexander Klemm, 2005. "Dissecting dividend decisions: some clues about the effects of dividend taxation from recent UK reforms," IFS Working Papers W05/17, Institute for Fiscal Studies.
  39. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  40. Hansson, Åsa, 2004. "Taxpayers Responsiveness to Tax Rate Changes and Implications for the Cost of Taxation," Working Papers 2004:5, Lund University, Department of Economics.
  41. Raj Chetty & Emmanuel Saez, 2007. "An Agency Theory of Dividend Taxation," NBER Working Papers 13538, National Bureau of Economic Research, Inc.
  42. Seppo Kari, 1999. "Dynamic Behaviour of the Firm Under Dual Income Taxation," Research Reports 51, Government Institute for Economic Research Finland (VATT).
  43. Baker, H. Kent & Mukherjee, Tarun K. & Paskelian, Ohannes George, 2006. "How Norwegian managers view dividend policy," Global Finance Journal, Elsevier, vol. 17(1), pages 155-176, September.
  44. Erik Fjaerli & Diderik Lund, 2001. "The choice between owner's wages and dividends under the dual income tax," Finnish Economic Papers, Finnish Economic Association, vol. 14(2), pages 104-119, Autumn.
  45. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2530. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.