Share buybacks and corporate tax cuts

Juin-Jen Chang, Chun-Hung Kuo, Hsieh-Yu Lin and Shu-Chun Yang

Journal of Economic Dynamics and Control, 2023, vol. 151, issue C

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 endogenous financial allocations towards corporate investment and buybacks, we show that buybacks render corporate tax cuts less expansionary. Simulations based on the 2017 Tax Cuts and Jobs Act have optimal buyback responses much smaller than those observed. This implies that restricting buybacks enhances corporate tax cut effects. Most of the income increases from corporate tax cuts accrue to shareholders. Whether non-shareholders enjoy higher consumption depends on the financing mechanism.

Keywords: Share buybacks; Corporate tax cuts; Tax policy effects; Fiscal multipliers; Fiscal policy effects; SVAR estimation (search for similar items in EconPapers)
JEL-codes: C32 D53 E62 H25 H30 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:151:y:2023:i:c:s0165188923000283

DOI: 10.1016/j.jedc.2023.104622

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