Journal of Tax Reform | 2026
Authors: Chikhaoui M.
DOI: 10.15826/jtr.2026.12.1.240
Journal: Journal of Tax Reform
Year: 2026
Publisher: Ural Federal University
Document Type: Article
Open Access: All Open Access; Gold Open Access; Green Open Access
Cited by: 0
This paper examines tax arbitrage between dividend income and capital gains in an international comparative framework. While traditional financial theory states that the tax treatment of dividends and capital gains should be neutral when markets op-erate without constraints, tax systems applied to individuals and businesses alter this balance and creating investor preferences. This study examines how 16 OECD mem-ber countries taxed dividends and capital gains from 2013 to 2023, focusing on actual fiscal treatment, double taxation relief, exemption rules, and capital gains deduction policies for different holding periods. The analysis uses a basic net after-tax income maximization and a logit probability model applied to a benchmark investment. The results reveal a general preference for capital gains in most studied countries, espe-cially when long-term gains are favored under favorable tax regimes. The double taxation of dividends makes them less attractive, while the stability and structure of tax regimes become key factors in investment decision-making. The estimated probabilities confirm a strong preference for capital gains in nearly all OECD countries. In countries such as Germany, France, Italy, and Belgium, the high probabilities of choosing capital gains are explained by net ratios greater than one, indicating that the expected net income from capital gains exceeds that from dividends. Conversely, in countries such as Ireland and Portugal, the logit model shows more balanced pro-babilities, reflecting more favorable dividend taxation or specific exemption schemes for capital gains. The findings highlight the importance of combined effective rates and specific tax provisions in capital allocation and contribute to the literature by providing an integrated international comparison of tax incentives affecting capital income choices in an environment of increased capital mobility. © Chikhaoui M., 2026.
capital gains; dividends; effective tax rates; OECD countries; probability of investor choice; tax arbitrage