Prof. Dharmapala publishes chapter on the impact of taxes on dividends and corporate financial policy

Dhammika Dharmapala (IDEAS) recently published a chapter in a book on tax policy lessons from the 2000s, edited by Alan Viard at the American Enterprise Institute.

In his chapter, Dharmapala finds that the 2003 dividend tax cut triggered a large and immediate increase in dividend payments by firms. The biggest increases occurred in firms whose stockholders were most affected by the tax cut. Dharmapala documents an investment shift following the cut, in which Americans moved their investments out of foreign firms whose dividends did not qualify for the cut and into foreign firms whose dividends did qualify. He concludes that the shareholder-level approach taken by the reform “may be less effective in a financially integrated world economy than measures directed specifically at U.S. firms.”

Additional information about this book is available at the American Enterprise Institute.