Reviving american entrepreneurship? tax reform and business dynamism

Petr Sedlacek and Vincent Sterk

Journal of Monetary Economics, 2019, vol. 105, issue C, 94-108

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 firm dynamics. We find 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 firm entry, leading to an increase in labor demand and wages. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.

Keywords: Taxation; Business dynamism; Aggregate productivity (search for similar items in EconPapers)
JEL-codes: D21 E22 E24 H25 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Reviving American Entrepreneurship? Tax Reform and Business Dynamism (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:105:y:2019:i:c:p:94-108

DOI: 10.1016/j.jmoneco.2019.04.009

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