Does lowering dividend tax rates increase dividends repatriated?: evidence of intra-firm cross-border dividend repatriation policies by German Multinational Enterprises

Markus Leibrecht, Christian Bellak and Michael Wild

No 2009,19, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: This paper explores the impact dividend taxes exert on the dividends repatriated from foreign affiliates to their German parent company. Based on an augmented Lintner model of firms' dividend payout decisions, the paper focusses on cross-border intra-firm dividend payments of wholly-owned foreign affiliates in the manufacturing sector. Firm-level data from the Microdatabase Direct Investment (MiDi) of the Deutsche Bundesbank is used. Results firstly signal the validity of the original Lintner model for cross-border intra-firm dividend payments of German affiliates abroad, although the target payout ratio and the degree of dividend smoothing drops substantially once timeinvariant unobserved heterogeneity is controlled for. Secondly, results from an augmented Lintner model imply that increases in dividend taxes indeed have a statistically significant negative impact on the expected value of dividends repatriated: Evaluated at the overall mean dividend payment a one percentage point increase in the dividend tax rate would decrease dividends repatriated by about 3.5 percent. Evaluated at the mean of positive dividend payments a semi-elasticity of -1.6 is derived.

Keywords: Dividend policy; taxes; lintner model; multinational enterprise (search for similar items in EconPapers)
JEL-codes: G35 H25 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Does Lowering Dividend Tax Rates IncreaseDividends Repatriated? Evidence of Intrafirm Cross-Border Dividend Repatriation Policiesby German Multinational Enterprises (2010)
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