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Return on political investment in the American Jobs Creation Act of 2004

Author

Listed:
  • Hui Chen

    (University of Zürich)

  • Katherine Gunny

    (University of Colorado at Boulder)

  • Karthik Ramanna

    (Harvard Business School, Accounting and Management Unit)

Abstract

Prior literature raises a "puzzle" of high rates of return on corporate political investment, but evidence for this puzzle is largely descriptive in nature. We exploit the setting of the American Jobs Creation Act's passage in 2004 to provide more robust estimates of political returns based on instrumentation in a two-stage regression model. We find for the median sample firm that an increase of $1 million in lobbying spending is associated with about $32.35 million in taxes saved. These estimates, while consistent with a high-returns "puzzle," are nearly an order of magnitude lower than those previously reported via descriptive methods.

Suggested Citation

  • Hui Chen & Katherine Gunny & Karthik Ramanna, 2014. "Return on political investment in the American Jobs Creation Act of 2004," Harvard Business School Working Papers 15-050, Harvard Business School.
    • Handle: RePEc:hbs:wpaper:15-050
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    Citations

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    Cited by:

    1. Platikanova, Petya, 2017. "Investor-legislators: Tax holiday for politically connected firms," The British Accounting Review, Elsevier, vol. 49(4), pages 380-398.
    2. Qingyuan Li & Edward L. Maydew & Richard H. Willis & Li Xu, 2022. "Corporate tax behavior and political uncertainty: Evidence from national elections around the world," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1605-1641, October.

    More about this item

    Keywords

    lobbying; multinationals; repatriations; returns; taxes;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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