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Taxation of Dividend Income and Economic Growth: The Case of Europe

Dackehag, Margareta LU and Hansson, Åsa LU (2015) In Working Paper / Department of Economics, School of Economics and Management, Lund University
Abstract
More recently researchers have turned to analyze how the tax structure, rather than the overall tax level, affects economic performance. For instance, several papers have investigated how taxation on corporate and individual (labor) income influences growth. Taxation of dividend income may also influence growth via its impact on investments and firm behavior. Within the academic community there is conflicting views about the impact taxation of dividends has on firm behavior and, hence, on economic performance. According to the “traditional view”, taxation of dividends is distortionary and increases the cost of equity. According to the “new view”, taxation of dividends does not influence the marginal cost of capital and consequently has no... (More)
More recently researchers have turned to analyze how the tax structure, rather than the overall tax level, affects economic performance. For instance, several papers have investigated how taxation on corporate and individual (labor) income influences growth. Taxation of dividend income may also influence growth via its impact on investments and firm behavior. Within the academic community there is conflicting views about the impact taxation of dividends has on firm behavior and, hence, on economic performance. According to the “traditional view”, taxation of dividends is distortionary and increases the cost of equity. According to the “new view”, taxation of dividends does not influence the marginal cost of capital and consequently has no impact on investment decisions. To our knowledge, this paper is the first study to explore how tax rates on dividends affect economic growth, by using panel data from 1990 till 2008 for 18 European countries. We find that taxation of dividend income negatively influences economic growth, a result that corroborates the old view of dividends taxation as distortionary and also has some policy implication for the European countries in question. (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
taxation of personal income, taxation of corporate income, Economic growth
in
Working Paper / Department of Economics, School of Economics and Management, Lund University
issue
24
publisher
Department of Economics, Lund Universtiy
language
English
LU publication?
yes
id
20f655d7-0d64-4286-958a-fe58d830765c (old id 7764137)
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2015_024.htm
date added to LUP
2015-08-19 15:00:20
date last changed
2016-04-16 10:22:22
@misc{20f655d7-0d64-4286-958a-fe58d830765c,
  abstract     = {More recently researchers have turned to analyze how the tax structure, rather than the overall tax level, affects economic performance. For instance, several papers have investigated how taxation on corporate and individual (labor) income influences growth. Taxation of dividend income may also influence growth via its impact on investments and firm behavior. Within the academic community there is conflicting views about the impact taxation of dividends has on firm behavior and, hence, on economic performance. According to the “traditional view”, taxation of dividends is distortionary and increases the cost of equity. According to the “new view”, taxation of dividends does not influence the marginal cost of capital and consequently has no impact on investment decisions. To our knowledge, this paper is the first study to explore how tax rates on dividends affect economic growth, by using panel data from 1990 till 2008 for 18 European countries. We find that taxation of dividend income negatively influences economic growth, a result that corroborates the old view of dividends taxation as distortionary and also has some policy implication for the European countries in question.},
  author       = {Dackehag, Margareta and Hansson, Åsa},
  keyword      = {taxation of personal income,taxation of corporate income,Economic growth},
  language     = {eng},
  number       = {24},
  publisher    = {ARRAY(0xb14a6b0)},
  series       = {Working Paper / Department of Economics, School of Economics and Management, Lund University},
  title        = {Taxation of Dividend Income and Economic Growth: The Case of Europe},
  year         = {2015},
}