Four facts about dividend payouts and the 2003 tax cut
- 512 Downloads
Recent literature has claimed that the 2003 U.S. dividend tax cut caused a large increase in aggregate dividend payouts. I document four simple facts that call this claim into question. First, the post-tax cut increase in dividend payouts coincided with a surge in corporate profits, such that the dividend payout ratio did not rise. Second, share repurchases increased even more rapidly than dividend payouts. Third, dividend payouts by Real Estate Investment Trusts also rose sharply, even though they did not qualify for reduced taxation. Finally, the stock market was forecasting an increase in dividend initiations by mid-2002, before the tax cut had been proposed.
KeywordsTaxes Payout policy Dividends Share repurchases
JEL ClassificationH20 G35
I thank Malcolm Baker, Jeff Brown, Raj Chetty, Amy Finkelstein, Alex Gelber, Jerry Hausman, James Hines, David Lebow, Jillian Popadak, James Poterba, Steve Sharpe, Johannes Spinnewijn, and Danny Yagan for helpful comments or conversations.
- Chetty, R., & Saez, E. (2005). Dividend taxes and corporate behavior: evidence from the 2003 dividend tax cut. Quarterly Journal of Economics, 120(3), 791–833. Google Scholar
- DeAngelo, H., DeAngelo, L., & Skinner, D. J. (2009). Corporate payout policy. Foundation and trends in finance. Boston: Now Publishers. Google Scholar
- Dharmapala, D. (2009). The impact of taxes on dividends and corporate financial policy: lessons from the 2000s. In A. Viard (Ed.), Tax policy lessons from the 2000s. Washington: American Enterprise Institute. Chapter 9. Google Scholar
- Jacob, M., & Jacob, M. (2010). Taxation, dividends and share repurchases: taking evidence global. Uppsala Center for Fiscal Studies Working Paper Series. Google Scholar
- Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 46(2), 97–113. Google Scholar
- Nam, J., Wang, J., & Zhang, G. (2004). The impact of dividend tax cut and managerial stock holdings on firm’s dividend policy. Unpublished Working Paper. Google Scholar
- Yagan, D. (2012). Do payout taxes reduce investment? Quasi-experimental evidence from the United States. Unpublished Working Paper, Harvard University. Google Scholar