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Tax Policy and Investment in a Global Economy

Author

Listed:
  • Gabriel Chodorow-Reich
  • Matthew Smith
  • Owen M. Zidar
  • Eric Zwick

Abstract

We evaluate the 2017 Tax Cuts and Jobs Act. Combining reduced-form estimates from tax data with a global investment model, we estimate responses, identify parameters, and conduct counterfactuals. Domestic investment of firms with the mean tax change increases 20% versus a no-change baseline. Due to novel foreign incentives, foreign capital of U.S. multinationals rises substantially. These incentives also boost domestic investment, indicating complementarity between domestic and foreign capital. In the model, the long-run effect on domestic capital in general equilibrium is 7% and the tax revenue feedback from growth offsets only 2p.p. of the direct cost of 41% of pre-TCJA corporate revenue.

Suggested Citation

  • Gabriel Chodorow-Reich & Matthew Smith & Owen M. Zidar & Eric Zwick, 2024. "Tax Policy and Investment in a Global Economy," NBER Working Papers 32180, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32180
    Note: CF EFG IFM ITI PE
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H0 - Public Economics - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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