Inflation, Taxation, and Corporate Behavior

Roger Gordon

No 588, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: During the past decade, the inflation rate has been very high by historical standards, yet the U.S. tax law has yet to adjust to this fact. The purpose of this paper is to investigate to what degree the lack of indexing of the corporate and personal income taxes by itself ought to have resulted in a change in corporate investment and financial policy, and in capital gains or losses to existing owners of corporate equity. In studying these questions, the paper models corporate financial and real decisions simultaneously, unlike other recent studies. The principle conclusions of the paper are: 1) the doubling of corporate debt-value rations can easily be rationalized solely by the interaction of inflation and the tax laws, 2) the stock market and the level of investment behaved much less favourably than would have been forecast focusing solely on the increased inflation rate, and 3) more pessimistic expectations, perhaps in combination with increased riskiness, would provide a consistent rationale for observed behaviour.

Date: 1980-12
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Gordon, Roger H. "Inflation, Taxation, and Corporate Behavior." Quarterly Journal of Economics, Vol. 99, No. 2, May 1984, pp. 313-327.

Downloads: (external link)
http://www.nber.org/papers/w0588.pdf (application/pdf)

Related works:
Journal Article: Inflation, Taxation, and Corporate Behavior (1984)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:0588

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0588

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).