Corporate Behavior and the Tax Cuts and Jobs Act

18 Pages Posted: 17 Sep 2019 Last revised: 7 Oct 2019

See all articles by Nicholas Cohen

Nicholas Cohen

Massachusetts Institute of Technology (MIT)

Manoj Viswanathan

University of California Hastings College of the Law

Date Written: September 7, 2019

Abstract

The Tax Cuts and Jobs Act of 2017 fundamentally altered United States tax law. TCJA supporters believed that the tax benefits afforded U.S. corporations would incentivize corporations to use their additional after-tax cash in ways beneficial to the U.S. economy. Our study, the first of its kind, uses corporation-by-corporation data from recent public filings to measure how the change in effective corporate tax rate affects various corporate behaviors. We find that the TCJA’s reduction in effective tax rate has no relationship to several corporate actions, including hiring new employees and making capital expenditures, two behaviors predicted by TCJA proponents. We do find, however, a small relationship between change in effective tax rate and both CEO compensation and total value of shares repurchased, two corporate behaviors anticipated by TCJA skeptics.

Keywords: TCJA, tax policy

JEL Classification: K34, H20, H25

Suggested Citation

Cohen, Nicholas and Viswanathan, Manoj, Corporate Behavior and the Tax Cuts and Jobs Act (September 7, 2019). UC Hastings Research Paper No.339. Available at SSRN: https://ssrn.com/abstract=3449860 or http://dx.doi.org/10.2139/ssrn.3449860

Nicholas Cohen

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Manoj Viswanathan (Contact Author)

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

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