Title

Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France

Author(s)

Adrien Matray Adrien Matray (Princeton University)

Charles Boissel Charles Boissel (HEC-Paris)

Abstract

This paper investigates how the 2013 three-fold increase in the dividend tax rate in France affected firms’ investment and performance. Using administrative data covering the universe of firms over 2008–2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly when facing high demand and return on capital. For every euro of undistributed dividends, firms increase their investment by 0.3 euro, leading to higher sales growth. Heterogeneity analyses show that no group of firms cut their investment, thereby rejecting models in which higher dividend taxes increase the cost of capital. Overall, our results show that the tax-induced increase in liquidity relaxes credit constraints and can reduce capital misallocation.

Creation Date

2020-09

Section URL ID

Paper Number

276

URL

https://gceps.princeton.edu/wp-content/uploads/2021/06/276_Matray.pdf

File Function

Jel

G11, G32, H25, O16

Keyword(s)

France; Financing Policy; Business Taxes; Capital and Ownership Structure

Suppress

false

Series

3