Tax Policy and Investment in a Global Economy

121 Pages Posted: 3 Nov 2023 Last revised: 4 Mar 2024

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Matthew Smith

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Owen Zidar

Princeton University

Eric Zwick

University of Chicago - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 4, 2023

Abstract

We evaluate the 2017 Tax Cuts and Jobs Act. Combining reduced-form estimates from tax data with a global investment model, we estimate responses, identify parameters, and conduct counterfactuals. Domestic investment of firms with the mean tax change increases 20% versus a no-change baseline. Due to novel foreign incentives, foreign capital of U.S. multinationals rises substantially. These incentives also boost domestic investment, indicating complementarity between domestic and foreign capital. In the model, the long-run effect on domestic capital in general equilibrium is 7% and the tax revenue feedback from growth offsets only 2p.p. of the direct cost of 41% of pre-TCJA corporate revenue.

Suggested Citation

Chodorow-Reich, Gabriel and Smith, Matthew and Zidar, Owen and Zwick, Eric, Tax Policy and Investment in a Global Economy (March 4, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-141, Available at SSRN: https://ssrn.com/abstract=4621641 or http://dx.doi.org/10.2139/ssrn.4621641

Gabriel Chodorow-Reich

Harvard University Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
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6174963226 (Phone)
6174963226 (Fax)

HOME PAGE: http://scholar.harvard.edu/chodorow-reich

Matthew Smith

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Owen Zidar

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Eric Zwick (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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