Title

Tax Policy and Investment in a Global Economy

Author(s)

Gabriel Chodorow-Reich Gabriel Chodorow-Reich (Harvard and NBER)

Matthew Smith Matthew Smith (US Treasury Department)

Owen Zidar Owen Zidar (Princeton and NBER)

Eric Zwick 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.

Creation Date

2024-05

Section URL ID

Paper Number

328

URL

https://gceps.princeton.edu/wp-content/uploads/2024/05/wp328_Zidar_tax_policy_investment.pdf

File Function

Jel

E23, F21, F23, H00, H25

Keyword(s)

Suppress

false

Series

3