Reviving American Entrepreneurship? Tax Reform and Business Dynamism

SedlÃ¡Ä ek, Petr and Vincent Sterk
Authors registered in the RePEc Author Service: Petr Sedlacek

No 13073, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous firms model, we investigate the long-run effects of such tax reforms on ï¬ rm dynamics. We ï¬ nd that they can substantially increase business dynamism, potentially offsetting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates ï¬ rm entry, leading to an increase in labor demand and wages, which in turn makes ï¬ rm selection more stringent. Related to this is a large boost of the number of ï¬ rms and of aggregate output, investment and employment.

JEL-codes: D21 E22 E24 H25 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-acc, nep-bec, nep-dge, nep-ent, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Reviving american entrepreneurship? tax reform and business dynamism (2019)
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