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.
"The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act."
American Economic Journal: Economic Policy,
Household Saving; Personal Finance
Portfolio Choice; Investment Decisions
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes