Dividend Taxes and Allocation of Capital (Comment): Bach et al. (2023)

What this is. The core findings of this replication comment, with the estimating equations and event-study diagnostics: enough to know what it found and how, without reading the source. To replicate or extend, read the original at doi.org/10.1257/aer.20221432. The replication package is at doi.org/10.3886/E185061V1.

TL;DR

Using the same data and code as Boissel and Matray (2022), this comment identifies two problems in BM’s analysis of the 2013 French dividend tax increase on corporate investment. First, a line in the code plotting BM’s Figure 4 divides two pre-reform event-study coefficients (t=-2 and t=-1) by 1.8, visually attenuating the gap between treated and control firms in the pre-period. Second, BM’s “size growth” controls are controls for the pre-reform average of the outcome variable (investment rate); in this analysis they reinforce differential pre-trends through mean reversion. Removing them attenuates the pre-trends but does not eliminate them or provide clear evidence of a positive investment effect. The paper concludes that one cannot claim the dividend tax increase had a positive effect on companies’ investment (p. 2049).

Core results

Magnitudes and locators are as reported in the comment; figures are from the 5-page article.

#	Result	Locator	Magnitude
R1	A line in BM’s plotting code divides two pre-reform event-study coefficients (t=-2 and t=-1) by 1.8, reducing the visual evidence of differential pre-trends	p. 2050	Factor of 1.8 applied to the t=-2 and t=-1 coefficients; original standard errors left untouched; alteration affects two of four pre-reform years
R2	Without the code alteration, the corrected BM specification shows differential pre-trends: confidence intervals for t=-2 and t=-1 exclude zero	Figure 1, pp. 2049-2050	CI excludes the null for t=-1 and t=-2 (orange curve); BM’s original figure places the null at or inside the CI edge for both periods
R3	Removing the size-growth (lagged outcome) controls leaves significant pre-trends and no clear post-reform positive investment effect in any specification	Figure 2, p. 2051	Three alternative event-study variants all show significant differential pre-trends; capital-level control specification shows pre-trends significant and in the opposite direction
R4	BM’s size-growth controls proxy for lagged investment; conditioning on the pre-reform outcome reinforces differential pre-trends through mean reversion	Equation (1), pp. 2050-2051; Figure 2, p. 2051	Controls use pre-reform annualized size-growth quartile-by-year fixed effects; the authors identify size growth with the investment rate and find that including it reinforces pre-trends
R5	Removing pre-treatment investment controls attenuates pre-trends but does not resolve the parallel-trends violation or produce a clear positive effect	Figure 2, p. 2051	Pre-trend differences are smaller than in the corrected BM specification but remain significant; the estimated post-reform effect is much lower, if any
R6	Replacing size-growth controls with capital-level controls reverses the pre-trend direction without clarifying the reform effect	Figure 2, p. 2051	Year dummies interacted with quintiles of average total capital in 2009-2012 yield very significant pre-trends in the opposite direction

Overall (paper’s conclusion). Using BM’s own data and code, the comment shows that the estimation of the investment impact of the French dividend tax hike is sensitive to the code alteration and to the choice of controls; no specification provides clear evidence that dividend taxes encourage investment (pp. 2051-2052).

Theory / model

This paper has no formal model. The central hypothesis under test is BM’s parallel trends assumption: absent the 2013 reform, investment trends in treated (high dividend-tax-burden) and control firms would have evolved identically. The comment is diagnostic: it tests whether this assumption holds in the corrected data.

The motivating economic claim, attributed to Boissel and Matray (2022), is that a higher dividend tax reduces the after-tax return to distributing earnings, encouraging firms to retain profits and invest. This channel contrasts with prior evidence. Becker, Jacob, and Jacob (2013) find cross-country evidence that higher dividend taxes hinder investment. Yagan (2015) finds the US 2003 dividend tax cut had no effect on corporate investment. Because BM’s result contradicts both of these priors, the comment provides strict re-examination of the methodology.

The parallel trends assumption is the sole identification claim. The comment assesses it by inspecting pre-period event-study coefficients; a finding of significant differential pre-trends invalidates the causal interpretation.

Method

The comment applies BM’s own difference-in-differences estimator, building on difference-in-differences and event-study primitives (see buildsFrom). Two diagnostic exercises identify the problems:

Code alteration check. The released code for BM’s Figure 4 first runs a regression with year-by-year interaction terms and then uses the output to produce an event-study plot. In this last step, a command divides the coefficients for t=-2 and t=-1 by 1.8, while leaving the standard errors unchanged (p. 2050). Removing this command restores the regression output as produced (event study 1 in Figure 1).

Lagged-outcome control check. BM define their “size growth” control as “a vector of pre-reform annualized size growth quartile-by-year fixed effects” (BM p. 2896, quoted p. 2050 of the comment). Size growth refers to capital growth, which is identical to the investment rate (the main outcome). In a difference-in-differences setting, conditioning on pre-reform investment reinforces differential pre-trends through mean reversion; removing these controls attenuates the pre-trends but does not eliminate them. The paper also notes that conditioning on pre-treatment outcomes can force parallel pre-trends mechanically in other difference-in-differences settings (Daw and Hatfield 2018; Chabé-Ferret 2017).

Empirical specifications

BM’s baseline difference-in-differences estimator, reproduced as equation (1) in this comment (p. 2050):

$$Y_{ijct} = \beta \, \text{Treated}_i \times \text{Post}_t + \theta_i + \text{SizeGrowthBin}_{it} + \delta_{jt} + \gamma_{ct} + \varepsilon_{ijct} \tag{1}$$

where $Y_{ijct}$ is total investment scaled by capital in 2011 for firm $i$ in industry $j$, cohort $c$, year $t$; $\text{Treated}_i \times \text{Post}_t$ is the main difference-in-differences term (dividend-tax-affected firms after the 2013 reform); $\theta_i$ are firm fixed effects; $\text{SizeGrowthBin}_{it}$ are pre-reform annualized size-growth quartile-by-year fixed effects (the lagged-outcome controls); $\delta_{jt}$ and $\gamma_{ct}$ are industry-year and cohort-year fixed effects.

The article prints the baseline equation (1), but does not print a separate algebraic event-study equation. Written out from the Figure 1 and Figure 2 notes, its dynamic specification replaces the single treatment interaction with year-by-year event-time interactions:

$$Y_{ijct} = \sum_{k \in \mathcal{K},\, k \ne k_0} \beta_k \, \text{Treated}_i \times \mathbf{1}(t - 2013 = k) + \theta_i + \text{SizeGrowthBin}_{it} + \delta_{jt} + \gamma_{ct} + \varepsilon_{ijct}$$

This is an unnumbered transcription of the described event-study estimator; the omitted reference year is not specified in the comment. The figures report yearly coefficients and 95 percent confidence intervals. The comment does not state a standard-error clustering treatment. The plotted event-time window is four years before through five years after the reform; the analysis uses the authors’ identical data and code.

The comment presents three alternative event-study specifications around the 2013 reform (Figure 2, p. 2051):

• Event study 1 (R2): Equation (1) with the code alteration removed. Keeps size-growth controls. Differential pre-trends for t=-2 and t=-1 are significant (CI excludes zero).
• Event study 2 (R3, green): Equation (1) without the alteration and without size-growth controls. Pre-trends are present but smaller; post-reform effect is unclear.
• Event study 3 (R3, brown): Equation (1) without the alteration and without size-growth controls, but with year dummies interacted with quintiles of average pre-reform capital level (2009-2012) to correct for pre-trends. Differential pre-trends are significant in the opposite direction.

The second and third variants are written out from the Figure 2 note, not printed as numbered equations. Event study 2 removes SizeGrowthBin from the equation above. Event study 3 also adds year-by-quintile interactions for average 2009-2012 total capital. Both retain the firm, industry-year, and cohort-year fixed effects shown in equation (1).

All three corrected specifications are inconsistent with the parallel trends assumption that BM’s causal interpretation requires.

Datasets used

Dataset	Role in paper	Wiki page
INSEE and DGFiP SUSE unified accounting files (2007)	Firm-level investment and capital data for the main DiD analysis	no page yet
INSEE Liaisons financières entre societes (2007-2011, 2012-2017)	Ownership structure for identifying dividend-tax-treatment status	no page yet
INSEE and DGFiP ESANE enterprise results (2008-2017)	Annual firm results covering the event-study window	no page yet

All data are French administrative microdata accessed via CASD (Centre d’Acces Securise aux Donnees) with institutional authorization. These are the same datasets as used by Boissel and Matray (2022). Sample: French private non-financial firms around the 2013 dividend tax reform; event-study window from 4 years pre-reform (approximately 2009) to 5 years post-reform (approximately 2018); annual frequency.

When to read the full paper

Read the original if you are: evaluating the credibility of Boissel and Matray (2022)‘s claimed positive investment effect of dividend taxes; studying how lagged-outcome controls can produce spurious parallel trends in difference-in-differences designs; or seeking event-study evidence on the investment effects of dividend taxation in France. The replication package at doi.org/10.3886/E185061V1 includes the corrected code and data documentation. Locators above point to the exact figures in the 5-page comment.

Attribution and rights

Source: peer-reviewed, American Economic Review 113(7), July 2023. This distillation was first extracted by an LLM on 2026-06-24 and updated on 2026-10-04; it is not human-verified or independently reproduced. Paywalled; extract-only.

Bach, Laurent, Antoine Bozio, Arthur Guillouzouic, and Clement Malgouyres. “Dividend Taxes and the Allocation of Capital: Comment.” American Economic Review 113, no. 7 (July 2023): 2048-2052. DOI: 10.1257/aer.20221432.