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Sweat Equity in U.S. Private Business

Author

Listed:
  • Anmol Bhandari
  • Ellen R. McGrattan

Abstract

This paper uses theory disciplined by U.S. national accounts and business census data to measure private business sweat equity, which is the value of time to build customer bases, client lists, and other intangible assets. We estimate an aggregate sweat equity value of 0.65 times GDP, with little cross-sectional dispersion in valuations when compared to business net incomes and large cross-sectional dispersion in rates of return. Our estimate of sweat equity is close to the estimate of marketable fixed assets used in production by private businesses, implying a high ratio of intangible to total assets. We use the model to evaluate the impact of greater tax compliance of private businesses and lower tax rates on the net income of both privately held and publicly traded businesses.

Suggested Citation

  • Anmol Bhandari & Ellen R. McGrattan, . "Sweat Equity in U.S. Private Business," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:560
    DOI: 10.21034/sr.560
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    References listed on IDEAS

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    More about this item

    Keywords

    Business valuation; Intangibles;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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