IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Transitional Dynamics of Dividend and Capital Gains Tax Cuts

Author Info

Listed author(s):
  • François Gourio
  • Jianjun Miao

Abstract

We develop a dynamic general equilibrium model to study the impact of the 2003 dividend and capital gains tax cuts. In the model, firms are heterogeneous in productivity and make investment and financing decisions subject to capital adjustment costs, equity issuance costs, and collateral constraints. We show that when the dividend and capital gains tax cuts are unexpected and permanent, dividend payments, equity issuance, and aggregate investment rise immediately. By contrast, when these tax cuts are unexpected and temporary, aggregate investment falls in the short run. This fall allows firms to distribute large dividends initially in response to the temporary dividend tax cut. We also find that the effects of a temporary dividend tax cut are very different from those of a temporary capital gains tax cut.

Download Info

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.nber.org/papers/w16157.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16157.

as
in new window

Length:
Date of creation: Jul 2010
Publication status: published as Francois Gourio & Jianjun Miao. "Transitional Dynamics of Dividend and Capital Gains Tax Cuts." Review of Economic Dynamics 14, 2 (2011): 368-383.
Handle: RePEc:nbr:nberwo:16157
Note: CF EFG PE
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

Keywords:

Other versions of this item:

Find related papers by JEL classification:
  • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
  • 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
  • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

This paper has been announced in the following NEP Reports:

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. 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 131-168, January.
  2. Brennan, Michael J & Thakor, Anjan V, 1990. " Shareholder Preferences and Dividend Policy," Journal of Finance, American Finance Association, vol. 45(4), pages 993-1018, September.
  3. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-396, March.
  4. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06.
  5. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 791-833.
  6. Auerbach, Alan J, 1989. "Tax Reform and Adjustment Costs: The Impact on Investment and Market Value," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 939-962, November.
  7. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
  8. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Journal of Public Economics, Elsevier, vol. 45(3), pages 271-300, August.
  9. James M. Poterba & Lawrence H. Summers, 1984. "The Economic Effects of Dividend Taxation," Working papers 343, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. 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.
  11. Joan Farre-Mensa & Roni Michaely & Martin Schmalz, 2014. "Payout Policy," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 75-134, December.
    • 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.
  12. Matthew D. Shapiro & Christopher L. House, 2006. "Phased-In Tax Cuts and Economic Activity," American Economic Review, American Economic Association, vol. 96(5), pages 1835-1849, December.
  13. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 767-796.
  14. 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.
  15. Christopher A. Hennessy & Toni M. Whited, 2005. "Debt Dynamics," Journal of Finance, American Finance Association, vol. 60(3), pages 1129-1165, 06.
  16. Alan J. Auerbach & James R. Hines, Jr., 1987. "Anticipated Tax Changes and the Timing of Investment," NBER Chapters,in: The Effects of Taxation on Capital Accumulation, pages 163-200 National Bureau of Economic Research, Inc.
  17. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  18. 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 411-411.
  19. Roger Gordon & Martin Dietz, 2006. "Dividends and Taxes," NBER Working Papers 12292, National Bureau of Economic Research, Inc.
  20. Auerbach, Alan J. & Hassett, Kevin A., 2003. "On the marginal source of investment funds," Journal of Public Economics, Elsevier, vol. 87(1), pages 205-232, January.
  21. Francisco J. Buera & Yongseok Shin, 2017. "Productivity Growth and Capital Flows: The Dynamics of Reforms," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 147-185, July.
  22. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  23. Robert E. Hall, 2009. "Reconciling Cyclical Movements in the Marginal Value of Time and the Marginal Product of Labor," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 281-323, 04.
  24. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 433-446.
  25. Abel, Andrew B., 1982. "Dynamic effects of permanent and temporary tax policies in a q model of investment," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 353-373.
  26. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:

  1. Anagnostopoulos, Alexis & Cárceles-Poveda, Eva & Lin, Danmo, 2012. "Dividend and capital gains taxation under incomplete markets," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 599-611.
  2. Kizuku Takao, 2014. "Dynamic effects of anticipated and temporary tax changes in a R&D-Based growth model," Discussion Papers in Economics and Business 14-10, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Orhan Atesagaoglu & Eva Carceles-Poveda & Alexis Anagnostopoulos, 2014. "Capital Income Taxation with Household and Firm Heterogeneity," 2014 Meeting Papers 525, Society for Economic Dynamics.
  4. repec:eee:moneco:v:87:y:2017:i:c:p:13-33 is not listed on IDEAS
  5. Ji, Philip Inyeob, 2016. "Is corporate payout taxation a long run phenomenon? Evidence from international data," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 84-100.
  6. William GBOHOUI & Rui Castro, 2016. "Stimulative Effects of Temporary Corporate Tax Cuts," 2016 Meeting Papers 1332, Society for Economic Dynamics.

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

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16157. 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: ()

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.