Document Type

Thesis or dissertation

Date of this Version



Daniel Garrett


This thesis examines how a change in dividend taxation would impact the payout and investment decisions of firms in Brazil. The current institutional framework in Brazil is important because it requires firms to pay out a portion of their earnings back to shareholders, either through dividends or interest on equity. However, the tax treatment of both is different: dividends are taxed at a 0% rate at the company level, while interest on equity is taxed at the rate of income, 15%. The Brazilian government has been discussing a tax change proposal that would reintroduce the tax on dividends and decrease the tax on income, which would affect the cash flow and financial decision-making of firms. This study aims to provide insight into how changes in tax policy can impact the payout and investment decisions of Brazilian firms. The findings of this study suggest that an increase in the dividend tax rate would lead to a decrease in dividends paid out by firms. In terms of investment, there is a confounding effect where the “old view” predicts a decrease in investment, and the “new view” predicts an increase or no change in investment. The findings suggest a predomination of the “old view” effects in Brazil. These results have important implications for policymakers in Brazil, as well as for investors and other stakeholders.


Brazil, Dividends, Taxes, Payout Policy, Investments, Earnings, Shareholders, “Old View”, “New View”, Cash Flow Sensitivity



Date Posted: 24 May 2023


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