Heterogeneous responses to corporate marginal tax rates: Evidence from small and large firms

DOI

Do small and large firms respond differently to tax cuts? Using new narrative measures of the exogenous variation in corporate marginal tax rates and a unique dataset of U.S. manufacturing firms, we find that the investment of large firms is more sensitive to a marginal tax cut than that of small firms. Furthermore, we show that small firms finance their new investments almost entirely through debt, whereas large firms use both cash and debt. Following a tax cut, the tax advantage of debt financing falls relative to cash financing. This substitution effect is more pronounced for large firms and induces them to rely on cash financing to a larger extent than small firms.

Identifier
DOI https://doi.org/10.15456/jae.2023169.1708641788
Metadata Access https://www.da-ra.de/oaip/oai?verb=GetRecord&metadataPrefix=oai_dc&identifier=oai:oai.da-ra.de:777871
Provenance
Creator Eskandari, Ruhollah; Zamanian, Morteza
Publisher ZBW - Leibniz Informationszentrum Wirtschaft
Publication Year 2023
Rights Creative Commons Attribution 4.0 (CC-BY); Download
OpenAccess true
Contact ZBW - Leibniz Informationszentrum Wirtschaft
Representation
Language English
Resource Type Collection
Discipline Economics; Social and Behavioural Sciences