Tax Policy, Investment, and Firm Financing: Evidence from the U.S. Interest Limitation
(with Lucas Goodman, Adam Isen, and Matt Smith)
Abstract: This paper studies the impacts of limiting interest deductions on firms’ investment and financing choices using U.S. tax data. The 2017 law known as the Tax Cuts and Jobs Act (TCJA) implemented an interest limitation for big, high-interest firms. Using an event study design comparing big and small high-interest firms, we rule out economically significant impacts of the interest limitation on investment and leverage, and find evidence that the interest limitation led firms to increase their equity issuance. A triple difference design that accommodates size-varying impacts of other TCJA policy changes yields similar results, as does a regression discontinuity design focusing on marginal firms that are just large enough to face the interest limitation. Our results indicate many firms do not use debt as their marginal source of financing and provide evidence consistent with capital structure models with fixed leverage adjustment costs. Furthermore, our results suggest limiting interest deductions is unlikely to have large impacts on investment or to address concerns about rising corporate debt levels.
Firm Responses to Book Income Alternative Minimum Taxes
Revise and Resubmit, Journal of Public Economics.
Tax Losses, Financing Constraints, and Targeting Corporate Fiscal Incentives
(with Eduard Boehm and Eric Zwick), approved IRS project.
Tax Subsidies and the Economic Impacts of Private Equity
(with Lucas Goodman, Adam Isen, Matt Smith, and Constantine Yannelis), approved IRS project.