65 Pages Posted: 8 Jan 2016 Last revised: 21 Jul 2017
Date Written: June 2017
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
JEL Classification: E20, H25, K34, O10, M40, M41
Suggested Citation: Suggested Citation
Khan, Urooj and Nallareddy, Suresh and Rouen, Ethan, The Role of Taxes in the Disconnect between Corporate Performance and Economic Growth (June 2017). Columbia Business School Research Paper No. 16-6; Harvard Business School Accounting & Management Unit Working Paper No. 18-006. Available at SSRN: https://ssrn.com/abstract=2712582 or http://dx.doi.org/10.2139/ssrn.2712582