Four facts about dividend payouts and the 2003 tax cut
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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.
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