Paper #1813

Título:

The long-run effects of corporate tax reforms

Autores:

Isaac Baley y Andrés Blanco

Data:

Enero 2022

Resumen:

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.

Palabras clave:

corporate taxes, investment frictions, fixed adjustment costs, irreversibility, lumpiness, capital misallocation, Tobin’s q, transitional dynamics, inaction, propagation

Códigos JEL:

D30, D80, E20, E30

Área de investigación:

Macroeconomía y Economía Internacional

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