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

  • Francois Gourio
  • Jianjun Miao

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15044.

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Date of creation: Jun 2009
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Publication status: published as François Gourio & Jianjun Miao, 2010. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 131-68, January.
Handle: RePEc:nbr:nberwo:15044
Note: CF EFG PE
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