Browsing by Subject "Corporate Taxes"

My dissertation seeks to enhance our understanding of how technology and fiscal policies shape firm behavior and implications for the aggregate economy and policy designs. In the first two chapters, I show empirically and quantitatively that information and communication technology (ICT) can widen firms’ geographic span of control by reducing internal communication costs. Combining comprehensive establishment-level datasets with ownership linkages, geographic locations, and ICT adoption, I document that firms with more advanced technology have both higher within-firm communication and larger geographic coverage. Exploiting natural experimental variation from the Internet privatization in the early 1990s, I show that better access to ICT helped firms expand geographically. Using a model where firms endogenously adopt ICT, choose multiple production locations, and trade domestically, I estimate that the Internet privatization increased overall efficiency by 1.1%. Compared to a trade-only model, a model with multi-unit firms predicts that efficiency gains are larger and more geographically dispersed. Policy counterfactuals show that to improve local welfare, a policy coordinated across locations that improves ICT access can be more effective than uncoordinated local policies.

The third chapter is joint work with Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, and Daniel Xu. We study one of the largest tax reforms in China---the 2009 value-added tax reform that allowed firms to deduct input value-added tax from output tax and thus reduced user cost of capital for equipment investment. Using reduced-form analysis and a quantitatively firm investment model, we find that investment stimuli that shrink firms' inaction regions, such as value-added tax reduction and investment tax credits, are more effective: Given the same tax revenue loss, those policies lead to larger investment response.

The Tax Cuts and Jobs Act (TCJA) is one of the most significant US tax reforms in 40 years. However, we know little about the TCJA’s macroeconomic effects, presumably due to the difficulty in distinguishing the law’s effects from other factors that affect the macroeconomy. In this paper, I create a new methodology that allows a researcher to use firms’ market reactions to identify the effects of a macroeconomic shock on the broader economy. I apply this method to the TCJA to identify its effects on GDP and wages. I find that the TCJA increased GDP and total wages paid to employees by 2.2% and 3.4%, respectively. I find that the total wage increase was driven by a 1.7% increase in employment and a 1.3% increase in annual salaries. In other words, I find the TCJA created 2 million jobs and increased average annual salaries by $520.