Does Lowering Dividend Tax Rates Increase Dividends Repatriated? Evidence of Intrafirm Cross-Border Dividend Repatriation Policies by German Multinational Enterprises

Bellak, C. and Leibrecht, M. (2010) Does Lowering Dividend Tax Rates Increase Dividends Repatriated? Evidence of Intrafirm Cross-Border Dividend Repatriation Policies by German Multinational Enterprises. FinanzArchiv: Public Finance Analysis, 66 (4). pp. 350-383. ISSN 0015-2218 doi: 10.1628/001522110X540847

Abstract/Summary

This paper explores the effect dividend taxes exert on dividends repatriated from foreign affiliates to their German parent companies. The empirical analysis based on firm-level data from the Microdatabase Direct Investment provided by the Deutsche Bundesbank first signals the validity of the original Lintner model for cross-border intrafirm dividend payments of German affiliates abroad. Second, results imply that high dividend taxes indeed have a statistically significant negative effect on dividends repatriated. Our calculations suggest that a one-percentage-point decrease in the dividend tax rate would increase dividends repatriated by about 3.75%. Evaluated at the mean of positive dividend payments, a semielasticity of -1.71 is derived.