Raj Chetty: belief

Transcript context

…But for her it’s salient. Now, another of your famous early papers was on corporations paying dividends, and yours is one of the first pieces — I think it’s from 2003 — where you show there’s more rationality to the dividend process than we used to think. If I think of what I learned in graduate school about dividends — this was before some of the later tax reforms — it seemed at the time there was no good reason to pay dividends at all, or at least there was no good reason to pay dividends and have the firm raise new funds through the capital market at the same time. That was the more general paradox. Now, your paper shows that changes in dividends can be explained quite well, but do you think, especially in those earlier years before tax reform, that the existence of dividends at all is a puzzle, either statically or in the time series, or do you feel that also makes sense? I think the existence of dividends itself is a bit of a puzzle, and our paper, which shows that changes in tax rates affect the amount of dividends firms pay out, doesn’t fully address that puzzle. So in particular, in the point you’re alluding to, is that you would think it’s more effective to repurchase shares and effectively return money to shareholders. Or do nothing.…

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