World dividends and tax shocks

Abstract

For a sample of 28,895 firms across 30 countries and 29 years, there is a negative relation between dividend tax rates and dividend payout. Firms increase dividend payout in response to both absolute and relative (to capital gains tax rates) decreases in dividend tax rates. This negative relation is robust to both increases and decreases and both shocks and continuous variation in dividend tax rates and affects both dividend payer status and dividend payout level. However, dividend payers do not increase dividend payout levels following decreases in dividend tax rates. The negative relation between dividend tax rates and dividend payout is stronger in countries and firms with better governance and suggests a dividend taxation elasticity of −0.45.