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U.S. Investment Since the Tax Cuts and Jobs Act of 2017

Author

Listed:
  • Emanuel Kopp
  • Mr. Daniel Leigh
  • Susanna Mursula
  • Suchanan Tambunlertchai
Abstract
There is no consensus on how strongly the Tax Cuts and Jobs Act (TCJA) has stimulated U.S. private fixed investment. Some argue that the business tax provisions spurred investment by cutting the cost of capital. Others see the TCJA primarily as a windfall for shareholders. We find that U.S. business investment since 2017 has grown strongly compared to pre-TCJA forecasts and that the overriding factor driving it has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts. Model simulations and firm-level data suggest that much of this weaker response reflects a lower sensitivity of investment to tax policy changes in the current environment of greater corporate market power. Economic policy uncertainty in 2018 played a relatively small role in dampening investment growth.

Suggested Citation

  • Emanuel Kopp & Mr. Daniel Leigh & Susanna Mursula & Suchanan Tambunlertchai, 2019. "U.S. Investment Since the Tax Cuts and Jobs Act of 2017," IMF Working Papers 2019/120, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/120
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    References listed on IDEAS

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    Cited by:

    1. Balázs Égert, 2021. "Investment in OECD Countries: a Primer," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 200-223, June.
    2. Athiphat Muthitacharoen, 2021. "Tax rate cut and firm investment: evidence from Thailand," Applied Economics Letters, Taylor & Francis Journals, vol. 28(3), pages 220-224, February.
    3. Chang, Juin-Jen & Kuo, Chun-Hung & Lin, Hsieh-Yu & Yang, Shu-Chun S., 2023. "Share buybacks and corporate tax cuts," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    4. Siraj G. Bawa & Nam T. Vu, 2020. "International effects of corporate tax cuts on income distribution," Review of International Economics, Wiley Blackwell, vol. 28(5), pages 1164-1190, November.
    5. Francesco Furno, 2021. "The Macroeconomic Effects of Corporate Tax Reforms," Papers 2111.12799, arXiv.org.

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