American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Effect of Corporate Taxation on Investment and Financial Policy: Evidence from the DPAD
American Economic Journal: Economic Policy
vol. 10,
no. 2, May 2018
(pp. 272–301)
(Complimentary)
Abstract
This study estimates the investment, financing, and payout responses to variation in a firm's effective corporate income tax rate in the United States. I exploit quasi-experimental variation created by the Domestic Production Activities Deduction, a corporate tax expenditure created in 2005. A 1 percentage point reduction in tax rates increases investment by 4.7 percent of installed capital, increases payouts by 0.3 percent of sales, and decreases debt by 5.3 percent of total assets. These estimates suggest that lower corporate tax rates and faster accelerated depreciation each stimulate a similar increase in investment, per dollar in lost revenue.Citation
Ohrn, Eric. 2018. "The Effect of Corporate Taxation on Investment and Financial Policy: Evidence from the DPAD." American Economic Journal: Economic Policy, 10 (2): 272–301. DOI: 10.1257/pol.20150378Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
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