Tax Policy and Investment in a Global Economy

This paper evaluates the effects of the 2017 Tax Cuts and Jobs Act (TCJA) on corporate investment using administrative tax data and a global investment model. Firms experiencing larger tax reductions increased domestic investment substantially—by roughly 20% relative to firms with no change. New international tax provisions also led U.S. multinationals to expand foreign capital, which in turn complemented and boosted domestic investment. In general equilibrium, the long-run increase in domestic capital is more modest, and the resulting economic growth offsets only a small portion of the tax revenue losses associated with the reform.