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Tax Policy and Investment in a Global Economy

Author

Listed:
  • Gabriel Chodorow-Reich

    (Harvard and NBER)

  • Matthew Smith

    (US Treasury Department)

  • Owen Zidar

    (Princeton and NBER)

  • Eric Zwick

    (Chicago Booth and NBER)

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 Zidar & Eric Zwick, 2024. "Tax Policy and Investment in a Global Economy," Working Papers 328, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:328
    as

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    References listed on IDEAS

    as
    1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    2. Michael Cooper & John McClelland & James Pearce & Richard Prisinzano & Joseph Sullivan & Danny Yagan & Owen Zidar & Eric Zwick, 2016. "Business in the United States: Who Owns It, and How Much Tax Do They Pay?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 91-128.
    3. Xavier Giroud & Joshua Rauh, 2019. "State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1262-1316.
    4. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    5. Blanchard, Olivier & Collins, Christopher G. & Jahan-Parvar, Mohammad R. & Pellet, Thomas & Wilson, Beth Anne, 2018. "A year of rising dangerously? The U.S. stock market performance in the aftermath of the presidential election," Journal of Policy Modeling, Elsevier, vol. 40(3), pages 489-502.
    6. Christopher L. House & Matthew D. Shapiro, 2008. "Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation," American Economic Review, American Economic Association, vol. 98(3), pages 737-768, June.
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    Cited by:

    1. Katarzyna A. Bilicka & Michael P. Devereux & İrem Güçeri, 2024. "Tax Policy, Investment and Profit Shifting," NBER Working Papers 33132, National Bureau of Economic Research, Inc.
    2. Carol C. Bertaut & Stephanie E. Curcuru & Ester Faia & Pierre-Olivier Gourinchas, 2024. "New Evidence on the US Excess Return on Foreign Portfolios," International Finance Discussion Papers 1398, Board of Governors of the Federal Reserve System (U.S.).
    3. Castro Nofal, Bastian & Díaz, Juan D. & Gutiérrez Cubillos, Pablo & Hansen, Erwin, 2024. "Stock returns and tax progressivity," Finance Research Letters, Elsevier, vol. 69(PB).

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • 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
    • H00 - Public Economics - - General - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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