Evaluation of a discontinued dividend tax reform

Since 2006, most dividends from closely held companies, regulated by the so-called 3:12-rules, have been taxed at a rate of 20%. In 2016–17, there was a political process that many observers believed would lead to an increase in the dividend tax rate to 25% from January 1, 2018. One possible way of responding to expectations was to pay high dividends while the tax was still low, and in 2016 and 2017 the total dividends from closely held companies were indeed at a much higher level than usual. However, the tax increase was never implemented, and the dividend tax rate remains at 20%.

In this project, we use micro data on companies and groups from the so-called FRIDA database at Statistics Sweden to investigate how the cancelled tax increase affected corporate income reporting, dividends and liquidity. To identify the effects, we exploit the fact that there are groups of firms that had no reason to expect higher taxes, namely those firms that were not affected by the 3:12-rules.