Adrien Matray, 05 December 2020

Academic research has so far had little to say on the impact of an increase in payout taxes on firm behaviour and the allocation of capital across firms. Using French administrative tax files that cover the universe of firms, this column tracks firm outcomes over the period 2008–2017 and estimates the effect of a steep increase in the dividend tax rate in 2013. It finds that the tax reform led to increased investment and cash holding, improved allocation of capital, and no discernible reduction in investment even among equity-dependent firms.

Natalie Bau, Adrien Matray, 16 March 2020

The misallocation of inputs, and in particular capital, may explain the large disparities in productivity across countries. This column exploits a policy in India in the early 2000s to quantify the effects of foreign capital liberalisation on misallocation and aggregate productivity in treated industries. As a result of the liberalisation policies, capital-constrained firms expanded their assets by 57%, spent more on labour (+27%), and increased their revenue by 25% relative to non-constrained firms. The effects of liberalisation were largest in areas with less developed local banking sectors.

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