Search Results for « Corporate Tax Reforms »

We propose a parametric specification of the probability of tax penalisation faced by a taxpayer, based on the amount of deduction chosen by her to reduce total taxation. Comparative analyses lead to a closed-form solution for the optimum tax deduction, and provide the maximising conditions with respect to the probability parameters.

Using aggregate, sectoral, and firm-level data, this paper examines the effects of two major U.S. corporate tax cuts. The Tax Cuts and Jobs Act (TCJA-17) led to large shareholder payouts but modest aggregate stimulus, while Kennedy's 1960s tax cuts stimulated output and investment with minimal payout impact. To explain this divergence, I incorporate tax depreciation policy and a pass-through business sector into a neoclassical growth model. The model suggests that accelerated depreciation and a large pass-through share dampen stimulus from corporate tax rate reductions, and that Kennedy's cuts boosted output four times more per dollar of lost revenue than the TCJA-17.

We study how revenue-neutral corporate tax reforms affect aggregate investment, productivity, and welfare in a heterogeneous firm model. Along the revenue-neutral schedule of rates and deductions, we show that a high-rate, high-deduction regime generates more aggregate investment and higher welfare than a low-rate, low-deduction one. More generous deductions act as an investment subsidy that benefits small to medium-large firms, which invest intensively relative to their size, and thereby foster capital accumulation despite the higher tax rate. However, the same mechanism reallocates capital away from the largest and most productive firms, reducing aggregate productivity. An event study exploiting firm-level variation in exposure to a 2005–2007 Dutch reform supports our model’s key mechanism.

International taxation rules are outdated, allowing multinationals to shift profits to tax havens. This paper examines how tax reforms affect profit shifting and cross-country welfare. We propose a model that separates real economic profits from paper profits, introducing 'triangle identities' to estimate bilateral profit-shifting flows. Using macro- and firm-level data, paper profits' elasticity is three times that of the tax base. Global minimum tax reforms improve welfare by increasing public goods funding and reducing tax competition. We also identify optimal minimum rates under various taxing-right scenarios and demonstrate that unilateral destination-based-cash-flow-tax reforms' welfare effects depend highly on trade imbalances.

As the US tax law evolves to adapt to ever-changing politico-economic realities, tax preparation software plays a significant role in helping taxpayers navigate these complexities. The dynamic nature of tax regulations poses a significant challenge to accurately and timely maintaining tax software artifacts. The state-of-the-art in maintaining tax prep software is time-consuming and error-prone as it involves manual code analysis combined with an expert interpretation of tax law amendments. We posit that the rigor and formality of tax amendment language, as expressed in IRS publications, makes it amenable to automatic translation to executable specifications (code). Our research efforts focus on identifying, understanding, and tackling technical challenges in leveraging Large Language Models (LLMs), such as ChatGPT and Llama, to faithfully extract code differentials from IRS publications and automatically integrate them with the prior version of the code to automate tax prep software maintenance.

We study the cross-country effects of corporate tax reforms in a fragmented global tax regime. Using firm-level evidence on the 2017 U.S. Tax Cuts and Jobs Act (TCJA) and a quantitative general-equilibrium model, we illustrate how multinational enterprises (MNEs) propagate local policy shocks globally. Our framework emphasizes two properties of intangible capital: non-rivalry and mobile ownership. The TCJA generated positive outward ripple effects through two channels. First, it boosted U.S. MNEs' intangible investment, raising output at their foreign subsidiaries. Second, it raised tangible investment by the U.S. subsidiaries of foreign MNEs, inducing their foreign parents to expand intangible investment at home. Conversely, a Global Minimum Tax (GMT) that allows low-tax jurisdictions to impose top-up taxes on U.S. MNEs' affiliate earnings generates negative inward ripple effects on GDP and tax revenue for the United States. These findings illustrate that there is no such thing as a purely domestic corporate tax policy.​

In many countries, income tax codes have grown into a complex tangle of interacting brackets, benefits, and deductions. Despite widespread calls for systematic reform, successful attempts at reform are rare. Part of the problem is the difficulty of designing viable reform proposals. Politically viable reform must offer hard guarantees on income effects, marginal rates, and budgetary cost. Existing microsimulation tools can evaluate a reform proposal but cannot generate one by themselves. We develop a framework that casts tax reform as a constrained optimization problem. We show that any statutory tax code satisfying four mild assumptions reduces to a finite-dimensional piecewise-linear function for each taxpayer group, so reform becomes a linear or mixed-integer linear program whose decision variables are legislatable parameters: rates, bracket cutoffs, and lump-sum transfers. We are able to recover current tax systems and generate provably optimal reform candidates within the modeled space, or a certificate that no reform satisfying certain policy design constraints exists. Behavioral effects can also be incorporated, producing a nonconvex mixed-integer formulation. We demonstrate the framework through a near-complete reconstruction of the Dutch income tax code, generating reforms that smooth marginal-rate spikes, cap household income losses, and roughly halve the number of active rules through a lexicographic procedure. Developed in close collaboration with the Dutch Ministry of Finance, the methodology is currently in active use there. An open-source software implementation is available as \texttt{TaxSolver}.

We study international spillovers of corporate tax reforms in a fragmented global tax regime. Using firm-level evidence on the 2017 U.S. Tax Cuts and Jobs Act (TCJA) and a quantitative general-equilibrium model, we illustrate how multinational enterprises (MNEs) propagate local policy shocks throughout the global economy. Our framework emphasizes two key intrinsic properties of intangible capital: non-rivalry and mobile ownership. We find the TCJA generated positive outward spillovers: First, it boosted U.S. MNEs’ intangible investment, raising their foreign subsidiaries’ output. Second, it increased tangible investment of foreign MNEs’ U.S. subsidiaries, incentivizing them to expand intangible investment at home. Conversely, a Global Minimum Tax (GMT) implemented by the rest of the world generates negative inward spillovers for the United States, even if U.S.-parented MNEs are exempt. These findings illustrate that there is no such thing as a purely domestic corporate tax policy.<br><br>Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at <a href="http://www.nber.org/papers/w34627" TARGET="_blank">www.nber.org</a>.<br>