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Dividends and Taxes: Evidence on Tax-Reduction Strategies

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  • Chaplinsky, Susan
  • Seyhun, H Nejat

Abstract

This article investigates two aspects of dividend tax avoidance not addressed by prior research. First, it examines the aggregate dividend tax savings provided to individuals through tax-exempt and tax-deferred accumulators. Using the Internal Revenue Service Individual Income Tax Model, it then proceeds to determine whether specific provisions of the Internal Revenue Code, such as the preferential treatment of capital gains, the investment-interest limitation, and the $100 dividend exclusion, affect the individual's choice of investment income. Finally, it provides a direct estimate of the average marginal tax rate on dividends that takes into account tax-favored accumulators. Copyright 1990 by the University of Chicago.

Suggested Citation

  • Chaplinsky, Susan & Seyhun, H Nejat, 1990. "Dividends and Taxes: Evidence on Tax-Reduction Strategies," The Journal of Business, University of Chicago Press, vol. 63(2), pages 239-260, April.
    • Handle: RePEc:ucp:jnlbus:v:63:y:1990:i:2:p:239-60
    DOI: 10.1086/296504
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    Cited by:

    1. Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171, Elsevier.
    2. Clemens Sialm, 2005. "Tax Changes and Asset Pricing: Time-Series Evidence," NBER Working Papers 11756, National Bureau of Economic Research, Inc.
    3. Rozycki, John J., 1997. "A tax motivation for smoothing dividends," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(2), pages 563-578.
    4. Wu, Chunchi, 1996. "Taxes and dividend policy," International Review of Economics & Finance, Elsevier, vol. 5(3), pages 291-305.
    5. Hanlon, Dean & Pinder, Sean, 2007. "An empirical investigation of whether Australian capital gains tax reforms influence individual investor behaviour," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 481-493, November.
    6. Bassam Jaara & Mahmoud Dalou, 2018. "Dividend Announcements of Banking Sector in Gulf Area; Pre, During and Post the Recent Global Financial Crisis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(6), pages 20-35, June.
    7. Sabur Mollah, 2011. "Do emerging market firms follow different dividend policies?," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 28(2), pages 118-135, June.

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