The Effect of Corporate Taxation on Investment and Financial Policy: Evidence from the DPAD
- American Economic Journal: Economic Policy (Forthcoming)
This study estimates the investment, financing, and payout responses to variation in a firms effective corporate income tax rate in the U.S. I exploit quasi-experimental variation created by the Domestic Production Activities Deduction, a corporate tax expenditure created in 2005. A one percentage point reduction in tax rates increases investment by 4.7 percent of installed capital, in- creases payouts by 0.3 percent of sales, and decreases debt by 5.3 percent of total assets. These estimates suggest that lower corporate tax rates and faster accelerated depreciation each stimulate a similar increase in investment, per dollar in lost revenue.
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