Inflation, Taxation and Corporate Investment in the U.S. During the Great Inflation
Name
Usenko-yusenko-SMMR-Management-2023-thesis.pdf
Description
Thesis PDF
Size
2 MB
Format
Adobe PDF
Checksum (MD5)
c276b8572d4422296f575eb0361441e8
Author(s)
Usenko, Yevhenii
Advisor(s)
Verner, Emil
Date Issued
June 2023
Publisher
Massachusetts Institute of Technology
Abstract
U.S. corporate taxation is not neutral to inflation. Two of its features – historical cost depreciation and FIFO inventory accounting – are expected to lower real after-tax corporate cash flows and, thereby, make investment less attractive when expected inflation is elevated. Using Compustat data for 1965-1980 and a difference-in-differences research design, I do not find evidence in support of this hypothesis. I discuss possible explanations for this non-result. In addition, I find a robust effect of statutory tax changes on corporate investment during the Great Inflation. The effect is economically meaningful and consistent with the prior literature: a tax reform that increases firm's cost of capital by 10% lowers investment of affected firms by 2 percentage points of total assets relative to firms not affected by the reform.
MIT Department
Sloan School of Management
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