Follow the Money! Combining Household and Firm-Level Evidence to Unravel the Tax Elasticity of Dividends

Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter!

“…Several studies have highlighted income-shifting behaviors. 8 Our results, in line on this point with Boissel and Matray (2022) and Bach et al (2021) suggest the absence of such behavior in France in response to capital taxation reforms.…”

“…Boissel and Matray (2022) estimate the response of firms to an increase in social security contributions applying to executives of some businesses (namely SARL) that occurred in France from 2013. Bach et al (2021) estimate behavioral responses to dividend taxation using recent French reforms on dividends, using difference-in-differences methods with both households' and firms' data. Chetty and Saez (2005), Yagan (2015) and Boissel and Matray (2022) obtain elasticities of about 0.5 on dividends with respect to the marginal tax rate, while Bach et al (2021) find a much higher elasticity.…”

“…Bach et al (2021) estimate behavioral responses to dividend taxation using recent French reforms on dividends, using difference-in-differences methods with both households' and firms' data. Chetty and Saez (2005), Yagan (2015) and Boissel and Matray (2022) obtain elasticities of about 0.5 on dividends with respect to the marginal tax rate, while Bach et al (2021) find a much higher elasticity. Our contribution to this literature is threefold.…”

Dividend Taxes, Firm Growth, and the Allocation of Capital

“…In an international setting, the taxation of dividends at the personal income level is negatively correlated with dividend payments (e.g., Chetty and Saez, 2005;Bach et al, 2019;Isakov, Pérignon, and Weisskopf, 2021). At the firm level, dividend tax cuts have been found to affect the allocation of investment across firms (Becker, Jacob, and Jacob, 2013;;Moon, 2021), had positive effect on payouts (Bach et al, 2019) and firm productivity (Jacob, 2020).…”

“…In an international setting, the taxation of dividends at the personal income level is negatively correlated with dividend payments (e.g., Chetty and Saez, 2005;Bach et al, 2019;Isakov, Pérignon, and Weisskopf, 2021). At the firm level, dividend tax cuts have been found to affect the allocation of investment across firms (Becker, Jacob, and Jacob, 2013;;Moon, 2021), had positive effect on payouts (Bach et al, 2019) and firm productivity (Jacob, 2020). Our paper was the first to study the effect of a very large tax increase on the universe of firms and their investment decisions, which is important as responses to tax rate changes are not always symmetric (e.g., Benzarti, Carloni, Harju, and Kosonen, 2020).…”