Taxation and the Evolution of Aggregate Corporate Ownership Concentration

Mihir A. Desai, Dhammika Dharmapala, Winnie Fung

NBER Working Paper No. 11469
Issued in July 2005
NBER Program(s):Corporate Finance, Public Economics

Legal rules, politics and behavioral factors have all been emphasized as explanatory factors in analyses of the determinants of the concentration of corporate ownership and stock market participation. An extension of standard tax clientele arguments demonstrates that changes in the progressivity of taxes can also significantly influence patterns of equity ownership. A novel index of the concentration of corporate ownership over the twentieth century in the U.S. provides the opportunity to quantitatively test for the role of taxes in shaping ownership concentration. The index of ownership concentration is characterized by considerable time series variation, with significant diffusion of ownership in the post WWII era and reconcentration in the late 1990s. Analysis of this index indicates that the progressivity of taxation significantly influences corporate ownership concentration and equity market participation as predicted by the model. This evidence supports the intuition of Berle and Means (1932) that taxation can significantly influence patterns of equity ownership.

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Document Object Identifier (DOI): 10.3386/w11469

Published: Auerbach, Alan J., James R. Hines, Jr. and Joel Slemrod (eds.) Taxing Corporate Income in the 21st Century. Cambridge and New York: Cambridge University Press, 2007.

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