The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act
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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.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.6.1.114Additional Materials
JEL Classification
- 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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