Download or read book Financial Frictions and Stimulative Effects of Temporary Corporate Tax Cuts written by William Gbohoui and published by International Monetary Fund. This book was released on 2019-05-07 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses an industry equilibrium model where some firms are financially constrained to quantify the effects of a transitory corporate tax cut funded by a future tax increase on the U.S. economy. It finds that by increasing current cash-flows tax cuts alleviate financing frictions, hereby stimulating current investment. Per dollar of tax stimulus, aggregate investment increases by 26 cents on impact, and aggregate output by 3.5 cents. The average effect masks heterogeneity: multipliers are close to 1 for constrained firms, especially new entrants, and negative for larger and unconstrained firms. The output effects extend well past the period the policy is reversed, leading to a cumulative multiplier of 7.2 cents. Multipliers are significantly larger when controlling for the investment crowding-out effect among unconstrained firms.

Download or read book Do Temporary Business Tax Cuts Matter A General Equilibrium Analysis written by William Gbohoui and published by International Monetary Fund. This book was released on 2019-02-15 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts. First, the analysis extends the Ricardian equivalence result to an environment with production and establishes that a temporary tax cut financed by a future tax-increase has no real effect if the tax is lump-sum and capital markets are perfect. Second, it shows that in the presence of financing frictions which raise the cost of investment, the policy temporarily relaxes the financing constraint thereby reducing the marginal cost of investment. This direct effect implies positive marginal propensities to invest out of tax cuts. Third, when the tax is distortionary, the expectation of high future tax rates reduces the expected marginal return on investment mitigating the direct stimulative effects.

Download or read book Essays on the Effects of Corporate Taxation written by William Dieudonné Yélian Gbohoui and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is a collection of three papers in macroeconomics and public finance. It develops Dynamic Stochastic General Equilibrium Models with a special focus on financial frictions to analyze the effects of changes in corporate tax policy on firm level and macroeconomic aggregates. Chapter 1 develops a dynamic general equilibrium model with a representative firm to assess the short-run effects of changes in the timing of corporate profit taxes. First, it extends the Ricardian equivalence result to an environment with production and establishes that a temporary corporate profit tax cut financed by future tax-increase has no real effect when the tax is lump sum and capital markets are perfect. Second, I assess how strong the ricardian forces are in the presence of financing frictions. I find that when equity issuance is costly, and when the firm faces a lower bound on dividend payments, a temporary tax cut reduces temporary the marginal cost of investment and implies positive marginal propensity of investment. Third, I analyze how do the intertemporal substitution effects of tax cuts interact with the stimulative effects when tax is not lump-sum. The results show that when tax is proportional to corporate profit, the expectations of high future tax rates reduce the expected marginal return on investment and mitigate the stimulative effects of tax cuts. The net investment response depends on the relative strength of each effect. Chapter 2 is co-authored with Rui Castro. In this paper, we quantify how effective temporary corporate tax cuts are in stimulating investment and output via relaxation of financing frictions. In fact, policymakers often rely on temporary corporate tax cuts in order to provide incentives for business investment in recession times. A common motivation is that such policies help relax financing frictions, which might bind more during recessions. We assess whether this mechanism is effective. In an industry equilibrium model where some firms are financially constrained, marginal propensities to invest are high. We consider a transitory corporate tax cut, funded by public debt. By increasing current cash flows, corporate tax cuts are effective at stimulating current investment. On impact, aggregate investment increases by 26 cents per dollar of tax stimulus, and aggregate output by 3.5 cents. The stimulative output effects are long-lived, extending past the period the policy is reversed, leading to a cumulative effect multiplier on output of 7.2 cents. A major factor preventing larger effects is that this policy tends to significantly crowd out investment among the larger, unconstrained firms. Chapter 3 studies the effects of the 1992's U.S. Treasury Department proposal of a Comprehensive Business Income Tax (CBIT) reform. According to the U.S. tax code, dividend and capital gain are taxed at the firm level and further taxed when distributed to shareholders. This double taxation may reduce the overall return on investment and induce inefficient capital allocation. Therefore, tax reforms have been at the center of numerous debates among economists and policymakers. As part of this debate, the U.S. Department of Treasury proposed in 1992 to abolish dividend and capital gain taxes, and to use a Comprehensive Business Income Tax (CBIT) to levy tax on corporate income. In this paper, I use an industry equilibrium model where firms are subject to financing frictions, and idiosyncratic productivity and entry/exit shocks to assess the long run effects of the CBIT. I find that the elimination of the capital gain and dividend taxes is not self financing. More precisely, the corporate profit tax rate should be increased from 34\% to 42\% to keep the reform revenue-neutral. Overall, the results show that the CBIT reform reduces capital accumulation and output by 8\% and 1\%, respectively. However, it improves capital allocation by 20\%, resulting in an increase in aggregate productivity by 1.41\% and in a modest welfare gain.

Download or read book Do Temporary Business Taxt Cuts Matter written by Willian Gbohoui and published by . This book was released on 2019 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts. First, the analysis extends the Ricardian equivalence result to an environment with production and establishes that a temporary tax cut financed by a future tax-increase has no real effect if the tax is lump-sum and capital markets are perfect. Second, it shows that in the presence of financing frictions which raise the cost of investment, the policy temporarily relaxes the financing constraint thereby reducing the marginal cost of investment. This direct effect implies positive marginal propensities to invest out of tax cuts. Third, when the tax is distortionary, the expectation of high future tax rates reduces the expected marginal return on investment mitigating the direct stimulative effects.

Download or read book No Business Taxation Without Model Representation written by Benjamin Carton and published by International Monetary Fund. This book was released on 2017-11-17 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed at the International Monetary Fund for policy analysis and international economic research. This paper documents the incorporation of corporate income, cash-flow and destination based cash-flow taxes into the model. The analysis presented considers the transmission mechanism of these taxes and details how financial frictions interact with each of the taxes.

Download or read book Tax Policy and the Economy written by and published by . This book was released on 1993 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Hysteresis and Business Cycles written by Ms.Valerie Cerra and published by International Monetary Fund. This book was released on 2020-05-29 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.

Download or read book Credit Supply and Productivity Growth written by Francesco Manaresi and published by International Monetary Fund. This book was released on 2019-05-17 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.

Download or read book Can Government Demand Stimulate Private Investment Evidence from U S Federal Procurement written by Shafik Hebous and published by International Monetary Fund. This book was released on 2016-03-10 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects of federal purchases on firms’ investment using a novel panel dataset that combines federal procurement contracts in the United States with key financial firm-level information. We find that 1 dollar of federal spending increases firms’ capital investment by 7 to 11 cents. The average effect masks heterogeneity: Effects are stronger for firms that face financing constraints and they are close to 0 for unconstrained firms. In line with the financial accelerator model, our findings indicate that the effect of government purchases works through easing firms’ access to external borrowing. Furthermore, industry-level analysis suggests that that the increase in investment at the firm level translates into an industry-wide effect without crowding-out capital investment of other firms in the same industry.

Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Download or read book Fiscal Policy and Long Term Growth written by International Monetary Fund and published by International Monetary Fund. This book was released on 2015-04-20 with total page 257 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.

Download or read book What Have We Learned written by George A. Akerlof and published by MIT Press. This book was released on 2016-09-02 with total page 369 pages. Available in PDF, EPUB and Kindle. Book excerpt: Top economists consider how to conduct policy in a world where previous beliefs have been shattered by the recent financial and economic crises. Since 2008, economic policymakers and researchers have occupied a brave new economic world. Previous consensuses have been upended, former assumptions have been cast into doubt, and new approaches have yet to stand the test of time. Policymakers have been forced to improvise and researchers to rethink basic theory. George Akerlof, Nobel Laureate and one of this volume's editors, compares the crisis to a cat stuck in a tree, afraid to move. In April 2013, the International Monetary Fund brought together leading economists and economic policymakers to discuss the slowly emerging contours of the macroeconomic future. This book offers their combined insights. The editors and contributors—who include the Nobel Laureate and bestselling author Joseph Stiglitz, Federal Reserve Vice Chair Janet Yellen, and the former Governor of the Bank of Israel Stanley Fischer—consider the lessons learned from the crisis and its aftermath. They discuss, among other things, post-crisis questions about the traditional policy focus on inflation; macroprudential tools (which focus on the stability of the entire financial system rather than of individual firms) and their effectiveness; fiscal stimulus, public debt, and fiscal consolidation; and exchange rate arrangements.

Download or read book Taxing Corporate Income in the 21st Century written by Alan J. Auerbach and published by Cambridge University Press. This book was released on 2007-04-16 with total page 401 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book was first published in 2007. Most countries levy taxes on corporations, but the impact - and therefore the wisdom - of such taxes is highly controversial among economists. Does the burden of these taxes fall on wealthy shareowners, or is it passed along to those who work for, or buy the products of, corporations? Can a country with high corporate taxes remain competitive in the global economy? This book features research by leading economists and accountants that sheds light on these and related questions, including how taxes affect corporate dividend policy, stock market value, avoidance, and evasion. The studies promise to inform both future tax policy and regulatory policy, especially in light of the Sarbanes-Oxley Act and other actions by the Securities and Exchange Commission that are having profound effects on the market for tax planning and auditing in the wake of the well-publicized accounting scandals in Enron and WorldCom.

Download or read book International Macroeconomics in the Wake of the Global Financial Crisis written by Laurent Ferrara and published by Springer. This book was released on 2018-06-13 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book collects selected articles addressing several currently debated issues in the field of international macroeconomics. They focus on the role of the central banks in the debate on how to come to terms with the long-term decline in productivity growth, insufficient aggregate demand, high economic uncertainty and growing inequalities following the global financial crisis. Central banks are of considerable importance in this debate since understanding the sluggishness of the recovery process as well as its implications for the natural interest rate are key to assessing output gaps and the monetary policy stance. The authors argue that a more dynamic domestic and external aggregate demand helps to raise the inflation rate, easing the constraint deriving from the zero lower bound and allowing monetary policy to depart from its current ultra-accommodative position. Beyond macroeconomic factors, the book also discusses a supportive financial environment as a precondition for the rebound of global economic activity, stressing that understanding capital flows is a prerequisite for economic-policy decisions.

Download or read book Global Tax Revolution written by Chris R. Edwards and published by Cato Institute. This book was released on 2008 with total page 267 pages. Available in PDF, EPUB and Kindle. Book excerpt: Introduction -- Capital explosion -- Tax cut revolution -- Flat tax club -- Mobile brains and mobile wealth -- Taxing businesses in the global economy -- The economics of tax competition -- The battle for freedom and competition -- The moral case for tax competition -- Options for U.S. policy.

Download or read book Banks Firms and Jobs written by Fabio Berton and published by International Monetary Fund. This book was released on 2017-02-14 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The contraction in credit supply explains one fourth of the reduction in employment. This result is concentrated in more levered and less productive firms. Also, the relatively less educated and less skilled workers with temporary contracts are the most affected. Our results are consistent with the cleansing role of financial shocks.

Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.