Corporate Tax Cuts Research Articles

Intertemporal Income Shifting for Investment Reasons: Evidence from Private Firms

ABSTRACT This paper examines the intertemporal income-shifting behavior of private firms, as well as the level and efficiency of aggressive intertemporal income shifters’ investments in the wake of corporate tax cuts. Earlier research has focused mainly on public firms. However, research into private firms is especially relevant since these companies tend to finance future growth through internal financing. Using a sample of 2,650 firm-year observations of private Spanish firms, our results thus show that private companies engaged in intertemporal income shifting to gain additional tax savings in the presence of corporate tax cuts. This was particularly observed in the presence of significant investment opportunities and timing pressures to shift income. Additionally, we provide evidence that aggressive intertemporal income shifters invested more in labor capital after tax reforms than other firms and that such investments were efficient. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M48; H21; H32.

The hidden cost of corporate tax cuts: Evidence from worker health in China

Despite extensive research on the impact of corporate tax cuts on firm-level outcomes, their effects on worker health have yet to be examined. This study aims to address this research gap by utilizing individual-level panel data from the China Family Panel Studies between 2010 and 2018, and by exploiting exogenous shock in the corporate effective tax burden stemming from accelerated depreciation. Our results yield three key findings: first, that corporate tax cuts significantly reduce worker health; second, that this effect may be driven by increased working hours and poor health behaviors; third, that corporate tax cuts exacerbate health inequalities based on gender, education level, executive positions, and employed company. These findings shed light on the wider implications of tax incentives for corporate investment and contribute to stimulating interest in the welfare of workers in a global wave of tax cuts.

Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach with Heterogeneous Firms: Further Results

This paper estimates state corporate tax incidence using new data and methods for estimating the effects on profits. Extending Suarez Serrato and Zidar (2016), we develop two identification approaches that use the effects on incumbent firm labor demand and local productivity. We estimate these effects using data from census, show how they identify parameters, and provide incidence estimates using reduced-form and structural approaches. Across these approaches, we find that owners bear a substantial portion of incidence. Our central estimate is that firm owners bear half of the incidence, while workers and landowners bear 25-40 percent and 10-15 percent, respectively.

Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach with Heterogeneous Firms: Reply

In Suárez Serrato and Zidar (2016), we estimate the incidence of state corporate taxes. Malgouyres, Mayer, and Mazet-Sonilhac (2023) highlight two errors, ignoring effects on firm composition and characterizing capital costs inconsistently. This reply corrects the structural model and corresponding incidence estimates. The incidence results are similar to the originally reported estimates and the confidence intervals widen for some estimates. In the corrected structural model, the firm owner incidence share estimate changes by 1.6 percentage points relative to the original version (i.e., 38.1 percent versus 36.5 percent). The worker share estimate is 35.0 percent. Landowners bear the remaining 26.8 percent. (JEL H22, H25, H32, H71, R23, R51)

Corporate Tax Cuts and the Decline of the Manufacturing Labor Share

We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor-intensive production units raised the concentration of market shares and reduced the concentration of employment.

Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms: Comment

Suárez Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative statics omitting a channel implied by their model: the link between common determinants of a location’s attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from the four estimated reduced-form effects. Assigning consensual values to the unidentified parameters, we find that the incidence share borne by firm owners is closer to 25 percent than 40 percent. (JEL H22, H25, H32, H71, R23, R51)

Share buybacks and corporate tax cuts

Since the mid-1980s, U.S. corporate tax cuts have become less expansionary and increasingly associated with rising share buybacks. Using dynamic general equilibrium models with endogenous financial allocations towards corporate investment and buybacks, we show that buybacks render corporate tax cuts less expansionary. Simulations based on the 2017 Tax Cuts and Jobs Act have optimal buyback responses much smaller than those observed. This implies that restricting buybacks enhances corporate tax cut effects. Most of the income increases from corporate tax cuts accrue to shareholders. Whether non-shareholders enjoy higher consumption depends on the financing mechanism.

일본 제조기업의 리쇼어링 현황과 일본 정부의 기업 유치 지원제도

Purpose: This study examines the current situation and characteristics of reshoring, manufacturers return to Japan from their production bases that have been relocated abroad amid increased instability in the global supply chain due to factors such as COVID-19 and Russia’s invasion of Ukraine. This study tried to figure out what kind of reshoring business attraction support policies are being deployed by the central government or local governments in Japan. Also the author tried to derive what implications these support policies have for Korea.
 Research design, data, and methodology: This study collects and analyzes the contents of previous research papers related to the Japanese government’s support system for attracting reshoring companies, statistical data from research institutes, press releases from media companies, and homepages of local governments regarding reshoring of Japanese manufacturing companies.
 Results: The Japanese government has executed various support policies at the central and local governments level to turn reshoring manufacturing companies into opportunities to contribute to the country’s economic regeneration and local growth, resulting in more than 500 companies returning to Japan annually in recent years. These results had the effect of creating new jobs in various parts of Japan, and the increase in local governments’ tax revenues led to the revitalization of the local economy.
 Implications: In order to induce a successful return to Korea for manufacturers wishing to reshor, policies that can provide unconventional incentives such as smart factory construction, R&D support, and corporate tax cuts for reshoring companies should be reviewed and prepared.

Corporate Tax Cuts and the Decline in the Manufacturing Labor Share

We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 to 60% of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital‐intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor‐intensive production units raised the concentration of market shares and reduced the concentration of employment.

Who Gains from Corporate Tax Cuts?

Who Gains from Corporate Tax Cuts?

Who Gains from Corporate Tax Cuts?

Who Gains from Corporate Tax Cuts?

Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach with Heterogeneous Firms: Further Results

Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach with Heterogeneous Firms: Further Results

Corporate tax cuts and firm employment: A match made in haven?

Evidence on employment responses to corporate income taxes is mixed. This paper revisits the issue in the context of corporate tax avoidance. It is now well known that multinational companies artificially register some of their profits in tax havens to reduce their tax liability. The study reveals that all other things being equal, the establishment of tax haven subsidiaries is followed by a 4 percent rise in firm employment in the subsequent years. This finding offers greater insight into how corporate income taxes affect employment levels. It also has particular resonance at a time when international tax regulation is tightening to limit the aggressive tax planning activities of large multinational companies. • The paper studies the effect of profit shifting on firm employment. • It exploits data on US-listed firms' financial statements and subsidiaries. • Entry into tax havens is associated with employment growth. • The finding fuels current discussions on the fight against income shifting practices.

Asymmetric Impact of Corporate Tax on Stock Market Development: Evidence from The Nonlinear Autoregressive Distributed Lag (ARDL) Approach

The stock market and tax policy are widely considered as two core factors for economic growth in any country. A well-developed and functioning stock market provides information on profit-making of successful investment projects, risk diversification, and efficient resource allocation. In addition to domestic resources, the stock market is also considered a crucial part of the global economy. In recent years most OECD countries, including the United States, have substantially reduced their corporate tax rates to stimulate investments, attract foreign capital, and achieve higher economic growth. Corporate tax cuts in a country are expected to positively affect stock market development by encouraging domestic investments and allowing for profit repatriation by multinational companies and foreign firms which will effectively lead to higher stock market development. Despite an extensive literature examining effects of tax policy and the stock market on economic growth, only a few studies have investigated the relationship between corporate tax rate and stock market development, and these studies have shown mixed results. This study investigates the link between corporate tax and stock market development for a group of nine selected OECD countries for the period of 1980-2018 using both long-run and short-run models. In addition to the Pesaran, Shin and Smith (2001) bounds testing approach to cointegration and error correction modeling using the linear ARDL model, we employ the Shin, Yu and Greenwood-Nimmo (2014) nonlinear cointegration approach to investigate the asymmetric impact of corporate tax changes on stock market development. Our findings indicate that, in the linear model in most of countries in this sample, corporate taxing adversely affects stock market development both in the short run and in the long run. In addition, as the first study using the N-ARDL estimation method to investigate this relationship, the robust and strong statistical results show that the effect of corporate tax on stock market development as a major part of financial market development is asymmetric. We show that corporate tax policies in the short run have a nonlinear, asymmetric impact on stock market development. The magnitude of the impact depends on whether the tax policy is a decrease or an increase in corporate tax. Furthermore, this effect changes among the countries in our study. For instance, the stock market's reaction to an increase of corporate taxing in the United States is much more rapid than that of decreases of corporate taxing. Corporate tax increases immediately and strongly affect the stock market, but the stock market takes years to incorporate the effect of tax decreases.

Do corporate tax cuts boost economic growth?

The empirical literature on the impact of corporate taxes on economic growth reaches ambiguous conclusions: corporate tax cuts increase, reduce, or do not significantly affect growth. We apply meta-regression methods to a novel data set with 441 estimates from 42 primary studies. There is evidence for publication selectivity in favour of reporting growth-enhancing effects of corporate tax cuts. Correcting for this bias, we cannot reject the hypothesis of a zero effect of corporate taxes on growth. Several factors influence reported estimates, including researcher choices concerning the measurement of growth and corporate taxes, and controlling for other budgetary components.

Do Corporate Tax Cuts Increase Income Inequality?

We study the effects of corporate taxes on income inequality. Using state corporate taxes as a setting, we provide evidence that corporate tax cuts lead to increases in income inequality. This result is robust across regression, matching, and synthetic controls approaches, and to controlling for a host of potential confounders. We use Statistics of Income data from the Internal Revenue Service to explore mechanisms behind this result. We find that tax cuts lead to higher income for both top and bottom earners, but the gains to capital income for top earners exceed the gains to total income for bottom earners. This result suggests that although all earners appear to benefit from a corporate tax cut, the relation between tax cuts and inequality is positive, in part, because high-income individuals shift their compensation to reduce taxes.

Practical Applications of Tax Reform, Company Value, and Biden Proposals

In <b><i>Tax Reform, Company Value, and Biden Proposals</i></b>, from <b><i>The Journal of Investing</i></b> 2021 special issue on trading, authors <b>Robin Walker</b> (of <b>Oklahoma City University</b>), <b>John Wingender</b>, and <b>Thomas Purcell</b> (both of <b>Creighton University</b>) examine the economic impacts of announcements related to the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA reduced corporate tax rates and made other changes intended to encourage companies to operate and invest in the United States. The authors studied whether public announcements related to the TCJA drove short-term changes in the stock prices of publicly traded companies. The authors tracked stock returns during the five-day period after each of several major TCJA-related announcements in late 2017. They found that all but the first announcement had a positive impact on stock prices, possibly because the later announcements indicated that the TCJA would implement significant corporate tax cuts. The announcements particularly boosted the stocks of US companies, dividend-paying companies, and companies paying a high tax rate. The authors say this information can be helpful to investors and companies making stock-related decisions during any future efforts by the current administration to make further changes to the tax laws.

Not All Corporate Tax Cuts Are Created Equal: Evidence from Bonus Depreciation and M&amp;amp;A

Not All Corporate Tax Cuts Are Created Equal: Evidence from Bonus Depreciation and M&amp;amp;A

Corporate tax cuts in a Schumpeterian growth model with an endogenous market structure

AbstractSchumpeterian theory simply predicts a negative relationship between corporate income tax and the economic growth rate because this tax decreases innovation rewards. However, empirical evidence for the effect of corporate tax on the growth rate is mixed. To fill this gap, this paper presents a Schumpeterian growth model with an endogenous market structure that generates an ambiguous relationship between the corporate tax rate and the growth rate. We analytically find that the relationship between the corporate tax rate and the growth rate can be either inverted U‐shaped or negative. In our endogenous market structure model, corporate tax cuts make the market more competitive and increase the costs of employing researchers through labor market equilibrium. Consequently, these two effects may dominate the Schumpeterian effect. In this case, a corporate tax cut may decrease economic growth.

Summaries of Articles

Summaries of Articles