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

38 Pages Posted: 10 Jul 2019

See all articles by Emanuel Kopp

Emanuel Kopp

International Monetary Fund (IMF)

Daniel Leigh

International Monetary Fund (IMF)

Susanna Mursula

International Monetary Fund (IMF)

Suchanan Tambunlertchai

International Monetary Fund (IMF)

Date Written: May 2019

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: Capital formation, Economic growth, Corporate investment, National income accounts, Structural vector autoregression, Investment, fiscal policy, market power, uncertainty., business investment, investment growth, predicted impact, markup

JEL Classification: D20, D8, E2, E62, E65, H25, H32, L1, E01, K34, H71

Suggested Citation

Kopp, Emanuel Albin and Leigh, Daniel and Mursula, Susanna and Tambunlertchai, Suchanan, U.S. Investment Since the Tax Cuts and Jobs Act of 2017 (May 2019). IMF Working Paper No. 19/120. Available at SSRN: https://ssrn.com/abstract=3417718

Emanuel Albin Kopp (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Susanna Mursula

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Suchanan Tambunlertchai

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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