U.S. Investment Since the Tax Cuts and Jobs Act of 2017

Emanuel Kopp, Daniel Leigh, Susanna Mursula and Suchanan Tambunlertchai

No 2019/120, IMF Working Papers from International Monetary Fund

Abstract: There is no consensus on how strongly the Tax Cuts and Jobs Act (TCJA) has stimulated U.S. private fixed investment. Some argue that the business tax provisions spurred investment by cutting the cost of capital. Others see the TCJA primarily as a windfall for shareholders. We find that U.S. business investment since 2017 has grown strongly compared to pre-TCJA forecasts and that the overriding factor driving it has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts. Model simulations and firm-level data suggest that much of this weaker response reflects a lower sensitivity of investment to tax policy changes in the current environment of greater corporate market power. Economic policy uncertainty in 2018 played a relatively small role in dampening investment growth.

Keywords: WP; business investment; investment growth; capital expenditure; aggregate demand; employment behavior; firm level; Investment; fiscal policy; market power; uncertainty; investment response; growth impact; company markup; savings company; investment growth impact; response to the TCJA; Private investment; Corporate income tax; Capital spending; Employment; Global (search for similar items in EconPapers)
Pages: 37
Date: 2019-05-31
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Citations: View citations in EconPapers (8)

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