The Effect of Dividends on Consumption

By Malcolm BakerStefan NagelJeffrey Wurgler
Brookings Papers on Economic Activity
2007 Issue 1

This article estimates the effects of dividends on consumption and the implied effects of the 2003 dividend tax cuts. “The Effect of Dividends on Consumption” was a paper presented at the Brookings Panel on Economic Activity on March 29 and 30, 2007. In traditional models, the division of stock returns into dividends and capital gains is a financial decision of no “real” consequence for investor consumption patterns. The authors discuss their research and why investors consuming from dividends versus capital gains is important in terms of corporate finance, macroeconomics, behavioral economics, and tax policy.