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American Economic Journal: Macroeconomics: Vol. 2 No. 1 (January 2010)

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Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform

Article Citation

Gourio, François, and Jianjun Miao. 2010. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform." American Economic Journal: Macroeconomics, 2(1): 131-68.

DOI: 10.1257/mac.2.1.131

Abstract

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)

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Authors

Gourio, François (Boston U)
Miao, Jianjun (Boston U and Zhongnan U Economics and Law)

JEL Classifications

D21: Firm Behavior: Theory
E22: Capital; Investment; Capacity
E62: Fiscal Policy
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G35: Payout Policy
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H32: Fiscal Policies and Behavior of Economic Agents: Firm

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