The Corporate Response to the 2003 Dividend Tax Cut.

In 2003, the tax rate on dividends was reduced from 35% to 15%. The crafters of the tax reduction and the popular press have suggested that the corporate response to the tax cut was immediate, and that firms began increasing dividend payments as a result of the lower tax rate soon after the law was...

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Bibliographic Details
Main Authors: Howton, Shawn., Howton, Shelly.
Format: Villanova Faculty Authorship
Language:English
Published: 2006
Online Access:http://ezproxy.villanova.edu/login?url=https://digital.library.villanova.edu/Item/vudl:177095
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Summary:In 2003, the tax rate on dividends was reduced from 35% to 15%. The crafters of the tax reduction and the popular press have suggested that the corporate response to the tax cut was immediate, and that firms began increasing dividend payments as a result of the lower tax rate soon after the law was passed. We compare 2003 and 2004 dividend tax policy to those of the previous four years for firms in the S&P 500 and find mixed evidence of these firms changing their tax policy in the aggregate. Firms with high earnings and low investment opportunities were the most likely to increase dividends in response to the tax change.