The Long-Run Effects of Corporate Tax Reforms

Category: Macro Seminar
When: 15 February 2022
, 14:15
 - 15:30
Where: HoF E.01/Deutsche Bank and online (Zoom)
Speaker: Isaac Baley (Pompeu Fabra University)

Title: The Long-Run Effects of Corporate Tax Reforms (joint with Andrés Blanco, U Michigan)

Abstract: We investigate the long-run effects of permanent corporate tax reforms on aggregate capital behavior. In an investment model with fixed adjustment costs and partial irreversibility, we show that corporate taxes and investment frictions jointly determine three interconnected macroeconomic outcomes: (i) capital allocation, (ii) capital valuation, and (iii) capital fluctuations around steady-state.  Using corporate tax and firm-level investment data from Chile, we discover that a lower corporate income tax improves the allocation of capital, reduces capital valuation, and accelerates capital fluctuations.