IMF Working Papers

U.S. Investment Since the Tax Cuts and Jobs Act of 2017

By Emanuel Kopp, Daniel Leigh, Susanna Mursula, Suchanan Tambunlertchai

May 31, 2019

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Emanuel Kopp, Daniel Leigh, Susanna Mursula, and Suchanan Tambunlertchai. U.S. Investment Since the Tax Cuts and Jobs Act of 2017, (USA: International Monetary Fund, 2019) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

There is no consensus on how strongly the Tax Cuts and Jobs Act (TCJA) has stimulated U.S. private fixed investment. Some argue that the business tax provisions spurred investment by cutting the cost of capital. Others see the TCJA primarily as a windfall for shareholders. We find that U.S. business investment since 2017 has grown strongly compared to pre-TCJA forecasts and that the overriding factor driving it has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts. Model simulations and firm-level data suggest that much of this weaker response reflects a lower sensitivity of investment to tax policy changes in the current environment of greater corporate market power. Economic policy uncertainty in 2018 played a relatively small role in dampening investment growth.

Subject: Capital spending, Corporate income tax, Employment, Expenditure, Labor, National accounts, Private investment, Taxes

Keywords: Aggregate demand, Business investment, Capital expenditure, Capital spending, Company markup, Corporate income tax, Employment, Employment behavior, Firm level, Fiscal policy, Global, Growth impact, Investment, Investment growth, Investment growth impact, Investment response, Market power, Private investment, Response to the TCJA, Savings company, Uncertainty, WP

Publication Details

  • Pages:

    37

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/120

  • Stock No:

    WPIEA2019120

  • ISBN:

    9781498317047

  • ISSN:

    1018-5941

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