The Impact of Taxation on Dividends: A Cross-Country Analysis

We analyze dividends tax systems in the world and assess their impact on dividend distributions. Using data from 24 OECD countries, we find that the dividend payout is monotonically distributed across tax regimes as firms in classical tax system countries have significantly lower payouts and speed of adjustment to target dividends than companies in partial or full imputation tax system countries. We also report that the type of dividend tax system affects the size of dividend payout while the tax rate differential between dividends and capital gain affects the propensity to pay and the decision to change dividends. Our results hold when we control for the other fundamental determinants of dividends. Finally, we find that ex-day returns are monotonically distributed across the tax systems, suggesting that the dividend taxation is also compounded into stock prices.