Tax Reform, Investment, and the Value of the Firm

56 Pages Posted: 5 Jul 2004

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

James R. Hines Jr.

University of Michigan; NBER

Date Written: 1986

Abstract

The taxation of corporate assets is well understood to influence investment and firm valuation. This paper explores the consequences of postwar U.S. tax changes in a dynamic model which incorporates costs of adjustment and investor expectations of future tax reforms and macroeconomic variability.When viewed in a dynamic context, the tax code can have very different incentives than those implied by the usual static analysis. Simulation results suggest that investment is sensitive to future tax changes and business-cycle movements. The paper also illustrates the implications of this analysis for the design of tax reforms.

Suggested Citation

Auerbach, Alan Jeffrey and Hines, James Rodger, Tax Reform, Investment, and the Value of the Firm (1986). NBER Working Paper No. w1803. Available at SSRN: https://ssrn.com/abstract=338842

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
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510-643-0711 (Phone)
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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Germany

James Rodger Hines

University of Michigan ( email )

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Ann Arbor, MI 48109-1215
United States

NBER

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Cambridge, MA 02138
United States

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