Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut
- (pp. 3531-63)
Abstract
This paper tests whether the 2003 dividend tax cut—one of the largest reforms ever to a US capital tax rate—stimulated corporate investment and increased labor earnings, using a quasi-experimental design and US corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment and employee compensation. Economically, the statistical precision challenges leading estimates of the cost-of-capital elasticity of investment, or undermines models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult to implement an alternative dividend tax cut that has substantially larger near-term effects. (JEL C72, C78, C91)Citation
Yagan, Danny. 2015. "Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut." American Economic Review, 105 (12): 3531-63. DOI: 10.1257/aer.20130098Additional Materials
JEL Classification
- C72 Noncooperative Games
- C78 Bargaining Theory; Matching Theory
- C91 Design of Experiments: Laboratory, Individual