Share buybacks and corporate tax cuts

Since the mid-1980s, U.S. corporate tax cuts have become less expansionary and increasingly associated with rising share buybacks. Using dynamic general equilibrium models with endogenous financial allocations towards corporate investment and buybacks, we show that buybacks render corporate tax cuts...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 151; p. 104622
Main Authors Chang, Juin-Jen, Kuo, Chun-Hung, Lin, Hsieh-Yu, Yang, Shu-Chun S.
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.06.2023
Subjects
Corporate tax cuts
Fiscal multipliers
Fiscal policy effects
Share buybacks
SVAR estimation
Tax policy effects
E62
Corporate tax cuts
C32
D53
H30
SVAR estimation
H25
Share buybacks
Tax policy effects
Fiscal multipliers
Fiscal policy effects
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Summary:Since the mid-1980s, U.S. corporate tax cuts have become less expansionary and increasingly associated with rising share buybacks. Using dynamic general equilibrium models with endogenous financial allocations towards corporate investment and buybacks, we show that buybacks render corporate tax cuts less expansionary. Simulations based on the 2017 Tax Cuts and Jobs Act have optimal buyback responses much smaller than those observed. This implies that restricting buybacks enhances corporate tax cut effects. Most of the income increases from corporate tax cuts accrue to shareholders. Whether non-shareholders enjoy higher consumption depends on the financing mechanism.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2023.104622