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

2010 ◽  
Vol 2 (1) ◽  
pp. 131-168 ◽  
Author(s):  
François Gourio ◽  
Jianjun Miao
Keyword(s):  
Capital Accumulation ◽  
Firm Heterogeneity ◽  
Percent Level ◽  
Capital Gains ◽  
Tax Rates ◽  
Aggregate Productivity ◽  
Capital Gains Tax ◽  
Productivity Shocks ◽  
Long Run ◽  
Dividend Tax

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. (JEL D21, E22, E62, G32, G35, H25, H32)

scholarly journals The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

2021 ◽  
Vol 3 (4) ◽  
pp. 399-416
Author(s):  
Ole Agersnap ◽  
Owen Zidar
Keyword(s):  
Rate Increase ◽  
State Level ◽  
The State ◽  
Capital Gains ◽  
Tax Revenue ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Federal Level ◽  
Long Run

This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is −0.5 to −0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent. (JEL E62, H25, H71)

The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

2014 ◽  
Vol 6 (1) ◽  
pp. 114-136 ◽  
Author(s):  
Laura Kawano
Keyword(s):  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Consumer Finances ◽  
Household Portfolio ◽  
Using Data ◽  
The Relationship ◽  
Dividend Tax

This paper provides evidence that dividend and capital gains tax rates importantly influence household portfolio choices. Using data from the Surveys of Consumer Finances around the 2003 dividend tax reductions, I estimate the relationship between taxes and household portfolio dividend yields. I find that a one percentage point decrease in the dividend tax rate relative to the long-term capital gains tax rate causes household portfolio dividend yields to increase by 0.04 percentage points. The results suggest that high income households significantly increased their portfolio dividend yields in response to the 2003 dividend tax rate reductions. (JEL D14, G11, G35, H24)

scholarly journals Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes

2011 ◽  
Vol 86 (3) ◽  
pp. 887-914 ◽  
Author(s):  
Jennifer L. Blouin ◽  
Jana S. Raedy ◽  
Douglas A. Shackelford
Keyword(s):  
Generalized Method Of Moments ◽  
Capital Gains ◽  
Share Repurchases ◽  
Individual Investors ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Firm Level ◽  
Shareholder Taxes ◽  
Tax Returns ◽  
Directors And Officers

ABSTRACT: This study jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors and officers, but not other individual investors, rebalanced their portfolios to maximize after-tax returns in light of the new tax rules. We also find that firms adjusted their distribution policy (specifically, dividends versus share repurchases) in a manner consistent with the altered tax incentives for individual investors. To our knowledge, this is the first study to employ simultaneous equations to estimate both shareholder and managerial responses to the 2003 rate reductions. We find that the generalized method of moments (GMM) estimates are substantially stronger than OLS estimates, consistent with our expectation that investor and manager responses are simultaneously determined. Failure to estimate systems of equations may account for some of the weak and conflicting results from prior studies of the 2003 rate reductions.

scholarly journals Long-Term Capital Gains Tax Strategies: Correlated Protective Put Strategy

2011 ◽  
Vol 2 (8) ◽  
Author(s):  
John R. Aulerich ◽  
James Molloy
Keyword(s):  
Stock Price ◽  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Holding Period ◽  
Put Option ◽  
Highly Correlated ◽  
One Year

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman; font-size: x-small;">A reduction in the long-term capital gains tax rate provides investors with new strategies to minimize taxes and protect investment gains.<span style="mso-spacerun: yes;">&nbsp; </span>One such opportunity exists when an investor decides to sell a profitable stock with a holding period of less than one-year, resulting in short-term ordinary taxes.<span style="mso-spacerun: yes;">&nbsp; </span>The investor would find it more beneficial to sell the stock after one-year lapses, resulting in lower long-term capital gain taxes, although the longer holding period exposes the investor to the uncertainty of stock price movement.<span style="mso-spacerun: yes;">&nbsp; </span>A strategy to extend the holding period without excess risk would be to use the protective put option strategy, sometimes referred to as &ldquo;investment insurance&rdquo;.<span style="mso-spacerun: yes;">&nbsp; </span>The strategy involves the purchase of a put option to protect against the possible decline in the stock price, to take advantage of the lower long-term capital gains tax rate, and to preserve the upside potential of the stock.<span style="mso-spacerun: yes;">&nbsp; </span>Pursuant to IRS Publication 550, the IRS does not allow the use of a protective put to extend the holding period on the same security considered for sale.<span style="mso-spacerun: yes;">&nbsp; </span>Since the IRS does not allow a direct protective put hedge, this study will explore an alternative strategy involving the purchase of a put on a highly correlated investment to extend the holding period to recognize lower capital gains tax rates.<span style="mso-spacerun: yes;">&nbsp; </span>The paper presents example situations when an investor benefits from utilizing the correlated protective put option strategy.</span></p>

scholarly journals CEO Tax Effects on Acquisition Structure and Value

2020 ◽  
pp. 0000-0000 ◽  
Author(s):  
Michelle Hanlon ◽  
Rodrigo Verdi ◽  
Benjamin P. Yost
Keyword(s):  
Tax Incentives ◽  
Capital Gains ◽  
Tax Rates ◽  
Agency Conflicts ◽  
Capital Gains Tax ◽  
Target Firm ◽  
Large Sample ◽  
Tax Effects

We hypothesize that prior evidence of target shareholder capital gains tax liabilities affecting acquisition features is driven by the tax liabilities of the target firm CEO. To test this, we estimate CEOs' capital gains tax liabilities for a large sample of acquisitions and examine the effects of such liabilities on acquisition outcomes. Results indicate that the previously documented positive relations between shareholder-level capital gains tax rates and 1) the likelihood of a nontaxable acquisition (Ayers, Lefanowicz, and Robinson 2004) and 2) acquisition premiums (Ayers, Lefanowicz, and Robinson 2003) are largely driven by CEO tax effects. We also find evidence consistent with 1) CEOs' tax incentives leading to potential agency conflicts under certain conditions and 2) acquisition structure or premium being adjusted in response to CEOs' taxes depending on the alternatives available to the acquirer. Our study contributes to our understanding of what and whose taxes affect acquisition structure and value.

Incremental Financing Decisions and Time-Series Variation in Personal Taxes on Equity Income

2007 ◽  
Vol 29 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Dan S. Dhaliwal ◽  
Merle M. Erickson ◽  
Linda K. Krull
Keyword(s):  
Time Series ◽  
Institutional Ownership ◽  
Capital Gains ◽  
Tax Rates ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Personal Taxes ◽  
Tax Exempt ◽  
Tax Benefits ◽  
Dividend Tax

This study investigates whether changes in personal tax rates on dividends and capital gains affect firms' incremental financing decisions. The evidence in this study suggests that following the 1997 and 2003 Tax Acts, which decreased tax rates on equity income, firms are less likely to issue debt relative to equity, consistent with the hypothesis that decreases in tax rates on equity income decrease the tax benefits of debt. Further, the magnitude of this effect varies predictably with dividend yield, a proxy for the proportion of equity income taxed at capital gain tax rates versus dividend tax rates. The magnitude of this effect is also decreasing in institutional ownership, a proxy for the probability that the marginal investor is tax exempt. This paper contributes to the literature that examines the effect of taxes on corporate financing decisions.

scholarly journals A Theory of Demand Shocks

2009 ◽  
Vol 99 (5) ◽  
pp. 2050-2084 ◽  
Author(s):  
Guido Lorenzoni
Keyword(s):  
Business Cycles ◽  
Aggregate Demand ◽  
Aggregate Productivity ◽  
Productivity Shocks ◽  
Demand Shocks ◽  
The Public ◽  
Long Run ◽  
Short Run ◽  
Public Signal ◽  
Heterogeneous Productivity

This paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity. Agents are hit by heterogeneous productivity shocks, they observe their own productivity and a noisy public signal regarding aggregate productivity. The public signal gives rise to “noise shocks,” which have the features of aggregate demand shocks: they increase output, employment, and inflation in the short run and have no effects in the long run. Numerical examples suggest that the model can generate sizable amounts of noise-driven volatility. (JEL D83, D84, E21, E23, E32)

CAPITAL GAINS TAX RATES AND STOCK MARKET VOLUME

1990 ◽  
Vol 43 (4) ◽  
pp. 411-425
Author(s):  
YOLANDA K. HENDERSON
Keyword(s):  
Stock Market ◽  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Market Volume

scholarly journals Fiscal policy in an open economy

2016 ◽  
Vol 16 (1) ◽  
Author(s):  
Amit Friedman ◽  
Zvi Hercowitz ◽  
Jonathan Sidi
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Debt ◽  
Government Spending ◽  
Tax Rates ◽  
Productivity Shocks ◽  
Policy Regime ◽  
Domestic Production ◽  
Long Run ◽  
Macroeconomic Implications

AbstractThis paper analyzes the quantitative macroeconomic implications of a fiscal policy regime based on exogenous tax rates paths and public debt/GDP target in an open economy. In this setup, government spending accommodates tax revenues and target deficits. In particular, we concentrate on pre-announced tax cuts, as well as on the adoption of a lower debt target – following policies conducted in Israel during the 2000s. We construct a model where domestic production requires imported inputs, and simulate the effects of these policies. The analysis focuses on the dynamics generated by the announcements of these policy steps, followed by their implementation. The model has the implication that a credible announcement of a future tax cut has an expansionary effect on impact, similar in nature to the effects of productivity shocks. Also, the model implies that the announcement of a lower public debt/GDP target has a contractionary effect, while it’s implementation leads to higher output in the long-run.

scholarly journals Tax Changes and Asset Pricing

2009 ◽  
Vol 99 (4) ◽  
pp. 1356-1383 ◽  
Author(s):  
Clemens Sialm
Keyword(s):  
Asset Pricing ◽  
Capital Gains ◽  
Tax Burden ◽  
Tax Rates ◽  
Policy Debate ◽  
Capital Gains Tax ◽  
Tax Capitalization ◽  
Tax Changes ◽  
Over Time ◽  
Equity Securities

The tax burden on equity securities has varied substantially over time and remains a source of continuing policy debate. This paper investigates whether investors were compensated for the tax burden of equity securities over the period between 1913 and 2006. Taxes on equity securities vary over time due to changes in dividend and capital gains tax rates and due to changes in corporate payout policies. Equity taxes also vary across firms due to persistent differences in propensities to pay dividends. The results indicate an economically plausible and statistically significant tax capitalization over time and cross-sectionally. (JEL G10, G12, H22, H24, N21, N22)

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