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Reviving american entrepreneurship? tax reform and business dynamism

Sedlacek, P; Sterk, V; (2019) Reviving american entrepreneurship? tax reform and business dynamism. Journal of Monetary Economics , 105 pp. 94-108. 10.1016/j.jmoneco.2019.04.009. Green open access

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Abstract

The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous-firms model, we investigate the long-run effects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially offsetting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.

Type: Article
Title: Reviving american entrepreneurship? tax reform and business dynamism
Location: Pittsburgh, PA
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jmoneco.2019.04.009
Publisher version: https://doi.org/10.1016/j.jmoneco.2019.04.009
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Taxation, Business dynamism, Aggregate productivity
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10066671
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