The goal of this project is to improve our understanding of behavioral responses to taxation. The ultimate aim is to develop better tax policies using a better understanding of how people respond to specific kinds of tax changes.
This award will fund two distinct projects. The first considers the effects of dividend taxation on firm behavior. In 2003, the maximum federal tax rate on corporate dividends substantially decreased. The investigator will examine how this drop in the tax rate changed the decisions made by corporations about whether to grant dividends and the size of such dividends. In previous work, the investigator and a co-author have shown that the 2003 changes led to a marked increase in dividends and a marked increase in the number of firms granting dividends. This award will fund additional work designed to determine the relationship between ownership composition and dividend behavior. Did firms with high levels of executive and institutional ownership respond differently than firms with large numbers of small investors?
The second project considers how car buyers respond to changes in two different kinds of taxes: sales taxes (which are paid at the time a car is purchased), and excise taxes (which are levied on car owners during their years of ownership and depend on the estimated used-car value). A preliminary study of state-level aggregate data suggests that new car purchases fall when sales taxes increase, but do not change when excise taxes increase. This project will use detailed data on new car sales to determine whether this is really the case. The PI also plans to develop an economic theory of whether or not there is any socially optimal use of "hidden" taxes, taxes that do not affect individual behavior in significant ways because they are not well understood.
