Share Buybacks and Corporate Tax Cuts

Juin-Jen Chang (), Chun-Hung Kuo (), Hsieh-Yu Lin () and Shu-Chun Yang
Additional contact information
Juin-Jen Chang: Institute of Economics, Academia Sinica, Taipei, Taiwan, https://www.econ.sinica.edu.tw/
Chun-Hung Kuo: Department of Economics, National Tsing Hua University
Hsieh-Yu Lin: Department of Economics, Tunghai University, https://economic.thu.edu.tw/en/

No 22-A005, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: 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 corporate financial allocations, we show that buybacks render a corporate tax cut less expansionary. Simulations based on the Tax Cuts and Jobs Act have the optimal buyback response much smaller than that observed. This implies that restricting buybacks is likely to enhance the expansionary effects of a corporate tax cut. Both shareholders and non-shareholders enjoy higher income from a corporate tax cut, but most of the income increases accrue to shareholders. Whether non-shareholders enjoy higher consumption de- pends on the fiscal adjustment mechanism.

Keywords: corporate tax cuts; share buybacks; tax policy effects; fiscal policy effects; SVAR estimation (search for similar items in EconPapers)
JEL-codes: C32 D53 E62 H25 H30 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2022-11
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-pbe and nep-pub
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Journal Article: Share buybacks and corporate tax cuts (2023)
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