English, Article, Journal or magazine article edition: Tax Policy and the Dividend Puzzle B. Douglas Bernheim

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Bookmark: http://trove.nla.gov.au/version/141723
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Tax Policy and the Dividend Puzzle
Author
  • B. Douglas Bernheim
Physical Description
  • preprint
Notes
  • This paper offers a new explanation of the dividend pizzle, based upon a model in which firms attempt to signal profitability by distrbuting cash to shareholders. I assume that dividends and repurchases are identical, except that dividends are taxed more heavily. Nevertheless, I demonstrate that, under certain plausible conditions, corporations will pay dividends. Indeed, some firms will actually pay dividends, and then retrieve a portion of these payments by issuing new equity (perhaps through a dividend reinvestment plan), despite the fact that this appears to create gratuitous tax liabilities. In addition to providing an explanation for the dividend puzzle, I also derive a number of strong results concerning corporate payout decisions and government tax policy. Some of these results are surprising. For example, the relationship between repurchases and firm quality is hump-shaped. Moreover, despite the fact that a higher dividend tax rate depresses dividend payments, it does not affect either government revenue or welfare.
  • RePEc:nbr:nberwo:3434
Language
  • English
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