Taxation, Dividends, and Share Repurchases: Taking Evidence Global

We compile a comprehensive international dividend and capital gains tax data set to study tax-based explanations of corporate payout for a panel of 6,035 firms from 25 countries for the period 1990-2008. We find robust evidence that the tax penalty on dividends versus capital gains corresponds closely with firms' propensity to pay dividends and repurchase shares, and with the amount of dividends and shares repurchased. Our coefficient estimates suggest a smaller tax effect than is reported in recent single-country, single-event studies. Instead, our results correspond more closely with historic long-term estimates of the elasticity of dividends.