Scandinavian Working Papers in Economics

SIFR Research Report Series,
Institute for Financial Research

No 51: Direct Evidence of Dividend Tax Clienteles

Magnus Dahlquist (), Göran Robertsson () and Kristian Rydqvist ()
Additional contact information
Magnus Dahlquist: Swedish Institute for Financial Research, Postal: Swedish Institute for Financial Research, Saltmätargatan 19A, SE-113 59 Stockholm, Sweden
Göran Robertsson: Swedish Institute for Financial Research, Postal: Swedish Institute for Financial Research, Saltmätargatan 19A, SE-113 59 Stockholm, Sweden
Kristian Rydqvist: Binghamton University

Abstract: We study a large data set of stock portfolios held by individuals and organizations in the Swedish stock market. The dividend yields on these port-folios are systematically related to investors' relative tax preferences for dividends versus capital gains. Tax-neutral investors earn 40 basis points higher dividend yield on their portfolios than investors which face higher effective taxation of dividends than capital gains. We conclude that there are dividend tax clienteles in the market. We also argue that the abundant portfolio holdings by private corporations, despite triple taxation at a combined marginal tax rate as high as 77.5%, is a consequence of taxation.

Keywords: Tax incidence; dividend tax clienteles; capital gains tax; stock ownership

JEL-codes: G11; G35

34 pages, March 15, 2007

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