Dividend Taxes and the Allocation of Capital
This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints, which can reduce capital misallocation.
This paper was previously circulated under the title: ``Higher Dividend Taxes? No Problem! Evidence from France.'' We are deeply indebted toward David Thesmar for numerous discussions and support and to Chenzi Xu. We would like to thank Liran Einav (Editor), four anonymous referees, Antoine Bozio, Denis Gromb, Ulrich Hege, Johan Hombert, Thomas Piketty, James Poterba, Emmanuel Saez, Antoinette Schoar, Stefanie Stantcheva, Danny Yagan, Owen Zidar, Eric Zwick and various seminar, brown-bag and conference participants at HEC-Paris, Paris School of Economics, EIEF-Einaudi, Toulouse School of Economics, MIT Sloan, Kellogg Northwestern, UCLA Anderson, UCLA Econ, Berkeley, NBER SI Corporate Finance 2019, NBER SI Public Economics 2019, AFA 2020, Wharton, LBS, Imperial, Boston College, Boston University, Oxford Said Business School, TSE, NES Moscow, MIT Sloan, NYU Stern, Rochester Business School. Matray gratefully acknowledges financial support from the Griswold Center for Economic Policy Studies and the Louis A. Simpson Center for the Study of Macroeconomics. Desislava Tartova provided stellar research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Charles Boissel & Adrien Matray, 2022. "Dividend Taxes and the Allocation of Capital," American Economic Review, vol 112(9), pages 2884-2920.