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Dividends and Taxation: A Preliminary Investigation

Author

Listed:
  • Tim Callen

    (Reserve Bank of Australia)

  • Steven Morling

    (Reserve Bank of Australia)

  • Jill Pleban

    (Reserve Bank of Australia)

Abstract

Several recent tax changes have increased the incentive for companies to pay dividends compared to retaining earnings. These are the introduction of the Capital Gains Tax (CGT), dividend imputation and the taxation of the earnings of superannuation funds. In this paper we examine the determinants of a company’s dividend policy and within this framework look at how these tax changes have influenced dividend payments. We present some empirical results that suggest that both cash flow and tax considerations are significant determinants of dividend behaviour. Real dividends per share increased by about 38 per cent between 1985/86 and 1990/91. We estimate that the tax changes account for a rise in real dividends per share of about 20 per cent during that period.

Suggested Citation

  • Tim Callen & Steven Morling & Jill Pleban, 1992. "Dividends and Taxation: A Preliminary Investigation," RBA Research Discussion Papers rdp9211, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9211
    as

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    File URL: https://www.rba.gov.au/publications/rdp/1992/pdf/rdp9211.pdf
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    References listed on IDEAS

    as
    1. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
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    3. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    4. B. Douglas Berhheim, 1991. "Tax Policy and the Dividend Puzzle," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 455-476, Winter.
    5. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
    6. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
    7. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
    8. Amemiya, Takeshi & MaCurdy, Thomas E, 1986. "Instrumental-Variable Estimation of an Error-Components Model," Econometrica, Econometric Society, vol. 54(4), pages 869-880, July.
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    Cited by:

    1. David Rodgers & Jonathan Hambur, 2018. "The GFC Investment Tax Break," RBA Research Discussion Papers rdp2018-07, Reserve Bank of Australia.
    2. Mark Westcott & John Murray, 2017. "Financialisation and inequality in Australia," The Economic and Labour Relations Review, , vol. 28(4), pages 519-537, December.
    3. Philip Lowe & Geoffrey Shuetrim, 1992. "The Evolution of Corporate Financial Structure: 1973–1990," RBA Research Discussion Papers rdp9216, Reserve Bank of Australia.

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