NCPA - National Center for Policy Analysis


August 16, 2004

A sharp and widespread surge in dividend contributions coincided with cutting the top tax rate on dividends from 35 percent to 15 percent in 2003, says a new study by the National Bureau of Economic Research (NBER).

Using data spanning the years 1980 to the first quarter of 2004, the NBER found the fraction of publicly traded firms paying dividends began to increase precisely in 2003 after having declined continuously for more than two decades:

  • Nearly 150 firms have initiated dividend payments after the tax cut, adding more than $1.5 billion to aggregate quarterly dividends.
  • Many firms that were already paying dividends prior to the reform raised regular dividend payments significantly after the tax cut.
  • Special dividends rose, but the magnitude of this effect was small relative to the increases in regular distributions in the long run.

The NBER concludes the surge in regular dividend payments after the 2003 reform is unprecedented in recent years.

Source: Raj Chetty and Emmanuel Saez, "Do Dividend Payments Respond to Taxes' Preliminary Evidence from the 2003 Dividend Tax Cut," National Bureau of Economic Research, Working Paper No. w10572, June 2004.

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