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A.J. Auerbach and K.A. Hassett, “Dividend Taxes and Firm Valuation: New Evidence,” American Economic Review, May 2006.

A.J. Auerbach and K.A. Hassett, “Dividend Taxes and Firm Valuation: New Evidence,” American Economic Review, May 2006.

The Jobs and Growth Tax Relief Act of 2003 (JGTRA03) reduced the tax rates on dividends, with the highest statutory tax rate of 35 percent falling to 15 percent. An interesting twist on the dividend tax cut was its temporary nature; the provision as passed was effective only through 2008, and (as recent Congressional deliberations have illustrated), the extension its supporters envisioned was by no means certain. This large dividend tax reduction, along with its sunset provision, offers an unusual natural research experiment on the effects of dividend taxation.