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Report
The impact of tax law changes on bank dividend policy, sell-offs, organizational form, and industry structure
This paper investigates the effect at the bank and industry level of a 1996 tax law change allowing commercial banks to elect S-corporation status. By the end of 2007, roughly one in three commercial banks had either opted for or converted to the S-corporation form of organization. Our study analyzes the effect of this conversion on bank dividend payouts. It also examines the effect S-corporation status has on a community bank's likelihood of sell-off and measures a firm's sensitivity to tax rates based on its choice of organizational form. We document that dividend payouts increase ...
Working Paper
Identifying long-run risks: a bayesian mixed-frequency approach
We develop a nonlinear state-space model that captures the joint dynamics of consumption, dividend growth, and asset returns. Building on Bansal and Yaron (2004), our model consists of an economy containing a common predictable component for consumption and dividend growth and multiple stochastic volatility processes. The estimation is based on annual consumption data from 1929 to 1959, monthly consumption data after 1959, and monthly asset return data throughout. We maximize the span of the sample to recover the predictable component and use high-frequency data, whenever available, to ...
Working Paper
Capital taxation during the U.S. Great Depression
Previous studies quantifying the effects of increased capital taxation during the U.S. Great Depression find that its contribution is small, both in accounting for the downturn in the early 1930s and in accounting for the slow recovery after 1934. This paper confirms that the effects are small in the case of taxation of business profits, but finds large effects in the case of taxation of dividend income. Tax rates on dividends rose dramatically during the 1930s and, when fed into a general equilibrium model, imply significant declines in investment and equity values and nontrivial declines in ...
Journal Article
Why is the dividend yield so low?
The dividend yield on stocks has dropped sharply over the last decade. Is its drop a consequence of irrational exuberance? This Commentary assesses alternative explanations for the diminished dividend yield.
Journal Article
What can \"buy-and-hold\" stock investors expect?
Working Paper
How did the 2003 dividend tax cut affect stock prices and corporate payout policy?
We examine the effects of the 2003 dividend tax cut on U.S. stock prices and corporate payout policies. First, using an event-study methodology, we compare the performance of U.S. stocks to that of other securities that should not have benefited from the tax change. We find that U.S. large-cap and small-cap indexes do not outperform their European counterparts, nor REIT stocks, over the event windows, suggesting little if any aggregate stock market effect from the tax change. In cross-sectional analysis, high-dividend stocks outperformed low-dividend stocks by a few percentage points over the ...
Working Paper
Optimal taxation of capital income in a growth model with monopoly profits
An extension of the standard neoclassical growth model, demonstrating that the optimal steady-state tax on capital income can be positive, negative, or zero, depending on the level of monopoly profits and the degree to which profits can be taxed.
Working Paper
Effects of the 2003 dividend tax cut: evidence from real estate investment trusts
Recent literature has estimated that the 2003 dividend tax cut caused a large increase in aggregate dividend payouts, which would imply that dividend taxation creates large efficiency costs relative to the amount of revenue raised. I document that dividend payouts by real estate investment trusts also rose sharply following the tax cut, even though REIT dividends did not qualify for the cut. Using REITs as a control group in a simple difference-in-differences framework produces small and statistically insignificant estimates of the effect of the tax cut on aggregate dividend payouts. I ...