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Estimating the elasticity of Intertemporal Substitution using Dividend Tax News Shocks

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  • Rustam Jamilov
  • Martin B. Holm
  • Marek Jasinski
  • Plamen Nenov

Abstract

This paper studies the spending response to news about a dividend tax reform to estimate the elasticity of intertemporal substitution (EIS). The Norwegian dividend tax reform was proposed in 2003, announced in 2004, and implemented in 2006, raising the dividend tax rate by 28 percentage points. We compare the spending responses of exposed households to a control group with no dividend income. Exposed households increased spending after the news and reduced spending after implementation. We show that this behavior is only consistent with an EIS above one. Using a capitalistworker framework, we estimate the EIS to be around 1.6.

Suggested Citation

  • Rustam Jamilov & Martin B. Holm & Marek Jasinski & Plamen Nenov, 2024. "Estimating the elasticity of Intertemporal Substitution using Dividend Tax News Shocks," Working Papers 02/2024, Centre for Household Finance and Macroeconomic Research (HOFIMAR), BI Norwegian Business School.
    • Handle: RePEc:bbq:wpaper:0009
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    1. Thor O. Thoresen & Erlend E. Bø & Erik Fjærli & Elin Halvorsen, 2012. "A Suggestion for Evaluating the Redistributional Effects of Tax Changes: With an Application to the 2006 Norwegian Tax Reform," Public Finance Review, , vol. 40(3), pages 303-338, May.
    2. Annette Alstadsæter & Wojciech Kopczuk & Kjetil Telle, 2014. "Are Closely Held Firms Tax Shelters?," NBER Chapters, in: Tax Policy and the Economy, Volume 28, pages 1-32, National Bureau of Economic Research, Inc.
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