Discussion paper

DP17228 Dividend Taxes and the Allocation of Capital

This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms over 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints which can reduce capital misallocation.


Boissel, C and A Matray (2022), ‘DP17228 Dividend Taxes and the Allocation of Capital‘, CEPR Discussion Paper No. 17228. CEPR Press, Paris & London. https://cepr.org/publications/dp17228