The Effect of Corporate Taxation on Investment and Financial Policy: Evidence from the DPAD

Eric Ohrn

American Economic Journal: Economic Policy, 2018, vol. 10, issue 2, 272-301

Abstract: This study estimates the investment, financing, and payout responses to variation in a firm's effective corporate income tax rate in the United States. I exploit quasi-experimental variation created by the Domestic Production Activities Deduction, a corporate tax expenditure created in 2005. A 1 percentage point reduction in tax rates increases investment by 4.7 percent of installed capital, increases payouts by 0.3 percent of sales, and decreases debt by 5.3 percent of total assets. These estimates suggest that lower corporate tax rates and faster accelerated depreciation each stimulate a similar increase in investment, per dollar in lost revenue.

JEL-codes: D22 D25 G31 G32 H25 H32 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pol.20150378
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Citations: View citations in EconPapers (72)

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