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The Role of Taxes in the Disconnect between Corporate Performance and Economic Growth

Urooj Khan (), Suresh Nallareddy () and Ethan Rouen ()
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Urooj Khan: Columbia University
Suresh Nallareddy: Duke University
Ethan Rouen: Harvard Business School, Accounting and Management Unit

No 18-006, Harvard Business School Working Papers from Harvard Business School

Abstract: We investigate the relation between the growth in corporate profits and the overall U.S. economy, focusing on the impact of the U.S. corporate tax regime on this relation. We document that the growth of corporate profits, on average, has outpaced the growth of the economy and this disconnect increases as the difference between the corporate income tax rate of the U.S. and the other OECD countries increases. The underlying mechanism is fewer corporate profits being channeled into subsequent domestic investments when the U.S. tax rate is relatively higher, leading to lower economic growth. Our findings have implications for policy setters.

Keywords: Taxes; economic growth; GDP; corporate profits; American Jobs Creation Act of 2004 (search for similar items in EconPapers)
JEL-codes: E20 H25 K34 M40 M41 O10 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2017-07
New Economics Papers: this item is included in nep-acc, nep-mac, nep-pbe and nep-pub
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