Revenue implications of New York City's tax system

A study of New York City's tax system finds that over the past three decades, the system has become less reliant on property and general sales taxes and more dependent on corporate and personal income taxes. This shift has made the city's tax revenues less stable than the revenues of the 1970s and more sensitive to cyclical swings.Taxation - New York (N.Y.) ; Revenue ; Federal Reserve District, 2nd ; Local government

Essays on taxation and investment

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009.This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.Includes bibliographical references (p. 141-147).This thesis consists of three essays that examine the impact of tax policy on firms' decisions to invest in productive capital. The first chapter uses newly-collected data on transaction prices of used construction machinery to examine the impact and incidence of recent tax incentives for investment. Theory predicts that incentives applying only to new investment should drive a wedge equal to the value of the incentives between the prices of new machines and equally productive used machines. The estimated effect of recent "bonus depreciation" incentives on the size of this wedge is close to zero. The total supply of machines, however, is highly price elastic. Together, these results suggest that the effectiveness of tax incentives that succeeded in stimulating investment demand would not be blunted by inelastic supply, but that the most recent set of tax incentives did little to stimulate investment demand. The second chapter documents the prevalence of losses among US corporations in recent years and examines their implications for the effectiveness of tax incentives for investment. Results suggest that asymmetries in the corporate tax code made recent bonus depreciation tax incentives about 5% less effective than they otherwise would have been. Recent declines in the ratio of cash flows to assets made bonus depreciation as much as 24% less effective than it otherwise would have been. Thus, recent losses can explain only part of the observed ineffectiveness of bonus depreciation.(cont.) The final chapter estimates the response of dividend payouts to a 2003 dividend tax cut using a new control group of unaffected firms. Dividend payouts by real estate investment trusts rose sharply following the tax cut, even though REIT dividends did not benefit from the cut. It appears that the surge in aggregate dividend payouts subsequent to the tax cut was driven primarily by an increase in corporate earnings. Evidence from the tax cut thus provides little support for the claim that dividend taxation creates large distortions to firm investment decisions or large efficiency costs.by Jesse Edgerton.Ph.D

Investment, accounting, and the salience of the corporate income tax

This paper develops and tests the hypothesis that accounting rules mitigate the impact of tax policy on investment decisions by obscuring the timing of tax payments. I model a firm that maximizes a discounted weighted average of after-tax cash flows and accounting profits. The cost of capital and the impact of tax incentives for investment both depend on the weight placed on accounting profits. I estimate this weight by comparing the effectiveness of tax incentives that do and do not affect accounting profits. Investment tax credits, which do affect accounting profits, have more impact on investment than accelerated depreciation, which does not. This difference in estimated impact is not obviously driven by discounting, cash flow effects, or measurement error. Results thus suggest that the tax burden on corporate capital could be lower than we would otherwise estimate, and accelerated depreciation provisions are less effective than they otherwise would be.Corporations - Taxation ; Tax credits ; Tax incentives

Effects of the 2003 dividend tax cut: evidence from real estate investment trusts

Recent literature has estimated that the 2003 dividend tax cut caused a large increase in aggregate dividend payouts, which would imply that dividend taxation creates large efficiency costs relative to the amount of revenue raised. I document that dividend payouts by real estate investment trusts also rose sharply following the tax cut, even though REIT dividends did not qualify for the cut. Using REITs as a control group in a simple difference-in-differences framework produces small and statistically insignificant estimates of the effect of the tax cut on aggregate dividend payouts. I further document that the ratio of dividend payouts to corporate earnings changed little after the tax cut, and that the ratio of dividend payouts to share repurchases fell dramatically. These facts suggest that contemporaneous increases in earnings and investor demand for payouts drove the observed increases in aggregate dividend payouts, with at most a modest role for the tax cut.Dividends ; Taxation

Investment incentives and corporate tax asymmetries

Recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money. I model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses. I estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status. Results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4% less effective than they would have been if all firms were fully taxable. Cash flows have more important effects on the impact of tax incentives. Recent declines in cash flows would predict a 24% decrease in the effectiveness of bonus depreciation. Results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place -- during downturns in economic activity when cash flows are low.Taxes Investment Bonus depreciation Tax asymmetries Cash flows

Estimating machinery supply elasticities using output price booms

Recent years have seen large increases in the prices of houses, farm products, and oil, often with little clear connection to economic fundamentals. These price increases created plausibly exogenous shifts in demand for construction, farm, and mining machinery. This paper uses these demand shifts to estimate the elasticity of machinery supply. Graphical evidence, OLS, and IV estimates all indicate that the quantity of machinery supplied increased rapidly during the booms, with only modest increases in prices. Pooled sample estimates of the supply elasticity are around 5, much larger than the estimate of 1 from Goolsbee (1998). Results thus suggest that public policies that stimulate investment demand will have only modest effects on the prices of investment goods.Manufacturing industries ; Capital investments ; Elasticity (Economics)

Agency problems in public firms: evidence from corporate jets in leveraged buyouts

This paper uses rich, new data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average jet fleets at least 40 percent smaller than observably similar publicly-traded firms. Similar fleet reductions are observed within firms that go private in leveraged buyouts. I discuss assumptions under which comparisons across and within firms provide estimates of lower and upper bounds on the average treatment effect of taking a firm from public to private in a leveraged buyout. Both censored and standard quantile regressions suggest that results at the mean are driven by firms in the upper 30 percent of the conditional jet distribution. Results thus suggest that executives in a substantial minority of public firms enjoy more generous perquisites than they would if subject to the pressures of private equity ownership. .Corporations ; Corporate governance ; Executives ; Leveraged buyouts