"In Taxation and the Evolution of Aggregate Corporate Ownership Concentration," authors Mihir Desai, Dhammika Dharmapala, and Winnie Fung investigate how personal taxes have shaped the level of stock ownership concentration in the United States during the twentieth century. By extending the financial-equilibrium intuition developed by Merton Miller, the authors show that increases in the progressivity of a tax system lead to a greater personal tax burden on corporate debt, relative to equity. This induces more equity issuance and, consequently, a larger fraction of investors to hold equity. In short, the marginal investor becomes a lower income individual.And to think, all this time Republicans have believed that if they could just gut Social Security and provide everyone with their own personal private account instead, they could create more investors who would then vote Republican. A devious plan, to be sure, but it looks like they went about it in entirely the wrong way: they should've been stumping for a more progressive tax structure, obviously.
To test this notion, the authors develop a measure of corporate ownership concentration at the economy-wide level. They use dividend income, as reported on tax returns over the 1916-2000 period, as a proxy for stock ownership, and construct an index that summarizes the degree of concentration of stock ownership across households over this period. An alternative measure based on estate tax data provides similar results. These measures differ from those used in studies of corporate governance, which typically track the ownership concentration of a sample of large public corporations across countries or through time. As such, the authors argue that these measures are especially well suited to understanding the determinants of stock market participation across income groups and for understanding ownership concentration at the aggregate level.