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American Economic Journal: Economic Policy: Vol. 6 No. 1 (February 2014)

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The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

Article Citation

Kawano, Laura. 2014. "The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act." American Economic Journal: Economic Policy, 6(1): 114-36.

DOI: 10.1257/pol.6.1.114

Abstract

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.

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Authors

Kawano, Laura (US Department of Treasury)

JEL Classifications

D14: Household Saving; Personal Finance
G11: Portfolio Choice; Investment Decisions
G35: Payout Policy
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes

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