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Working Paper
The TCJA and Domestic Corporate Tax Rates
We study changes in tax positions for U.S. C corporations following passage of the 2017 tax legislation commonly known as the Tax Cuts and Jobs Act (TCJA). While existing research has focused primarily on publicly traded companies, data limitations have prevented more holistic analyses of the corporate sector. Using a representative sample of U.S. corporate tax returns, we highlight how trends in effective tax rates (ETRs) and exposure to the legislation’s main provisions varied for public, private, multinational, domestic, and large versus small firms. We document several novel facts, ...
Discussion Paper
Tax Reform's Impact on Bank and Corporate Cyclicality
The Tax Cuts and Jobs Act (TCJA) is expected to increase after-tax profits for most companies, primarily by lowering the top corporate statutory tax rate from 35 percent to 21 percent. At the same time, the TCJA provides less favorable treatment of net operating losses and limits the deductibility of net interest expense. We explain how the latter set of changes may heighten bank and corporate borrower cyclicality by making bank capital and default risk for highly levered corporations more sensitive to economic downturns.
Working Paper
Tax Heterogeneity and Misallocation
Companies face different effective marginal tax rates on their income. This can be detrimental to allocative efficiency unless taxes offset other distortions in the economy. This paper estimates the effect of tax rate heterogeneity on aggregate productivity in distorted economies with multiple frictions. Using firm-level balance-sheet data and estimates of marginal tax rates, we find that tax heterogeneity reduces total factor productivity by about 3 percent. Our findings highlight the positive correlation between marginal tax rates and other distortions to capital and especially labor. This ...
Working Paper
To Cut or Not to Cut? On the Impact of Corporate Taxes on Employment and Income
Do corporate tax increases destroy jobs? And do corporate tax cuts boost employment? Answering these questions has proved empirically challenging. We propose an identification strategy that exploits variation in corporate income tax rates across U.S. states. Comparing contiguous counties straddling state borders over the period 1970 to 2010, we find that increases in corporate tax rates lead to significant reductions in employment and income. We find little evidence that corporate tax cuts boost economic activity, unless implemented during recessions when they lead to significant increases in ...
Working Paper
Capital Gains Taxation and Investment Dynamics
This paper quanti?es the long-run effects of reducing capital gains taxes on aggregate investment. We develop a dynamic general equilibrium model with heterogeneous ?rms, which face discrete capital gains tax rates based on their ?rm size. We calibrate our model by targeting relevant micro moments as well as the difference-in-differences estimate of the capital elasticity based on the institutional setting and a policy reform in Korea. We ?nd that the ?rm-size reform that reduced the capital gains tax rates from 24 percent to 10 percent for the affected ?rms increased aggregate investment by ...
Working Paper
The Macroeconomic Effects of the Tax Cuts and Jobs Act
This paper studies the macroeconomic effects of seven key TCJA provisions, including the tax cuts for individuals and businesses, the bonus depreciation of equipment, the amortization of R&D expenses, and the limits on interest deductibility. I use a dynamic general equilibrium model with interest deductibility and accelerated depreciation. I find that, initially, the tax reform had a small positive impact on output and investment. In the medium term, however, the effect on output will diminish, and the effect on investment will turn negative. The tax reform will depress investment in R&D. ...
Working Paper
What Do Survey Data Tell Us about US Businesses?
This paper examines the reliability of survey data on business incomes, valuations, and rates of return, which are key inputs for studies of wealth inequality and entrepreneurial choice. We compare survey responses of business owners with available data from administrative tax records, brokered private business sales, and publicly traded company filings and document problems due to nonrepresentative samples and measurement errors across several surveys, subsamples, and years. We find that the discrepancies are economically relevant for the statistics of interest. We investigate reasons for ...
Report
The Effect of Bank Monitoring on Loan Repayment
Monitoring is one of the main activities explaining the existence of banks, yet empirical evidence about its effect on loan outcomes is scant. Using granular loan-level information from the Italian Credit Register, we build a novel measure of bank monitoring based on banks’ requests for information on their existing borrowers and we investigate the effect of bank monitoring on loan repayment. We perform a causal analysis exploiting changes in the regional corporate tax rate as a source of exogenous variation in bank monitoring. Our identification strategy is supported by a theoretical model ...
Report
Data Appendix: What Do Survey Data Tell Us about U.S. Businesses?
In this appendix, we provide details on the data sources and construction of variables for our analysis in "What Do Survey Data Tell Us about U.S. Businesses?" We also include the auxiliary tables and figures omitted from the main text.
Working Paper
Nothing is Certain Except Death and Taxes : The Lack of Policy Uncertainty from Expiring \"Temporary\" Taxes
What is the policy uncertainty surrounding expiring taxes? How uncertain are the approvals of routine extensions of temporary tax policies? To answer these questions, I use event studies to measure cumulative abnormal returns (CARs) for firms that claimed the U.S. research and development (R&D) tax credit from 1996-2015. In 1996, the U.S. R&D tax credit was statutorily temporary but was routinely extended ten times until 2015, when it was made permanent. I take the event dates as both when these ten extensions of the R&D tax credit were introduced into committee and when the extensions were ...