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Has long-run profitability risen in the 1990s

  • John V. Duca

This article analyzes the recent rebound in nonfinancial corporate profitability, as measured by after-tax profits as a share of output. Virtually all the resurgence in corporate profitability during the 1990s reflects a cyclical increase in profits and a decline in net interest expense associated with deleveraging and lower interest rates. In this sense, it is not clear that a long lasting upward shift in the economic returns to capital has occurred, after accounting for short-run cyclical-related movements and for how deleveraging and lower interest rates have shifted capital payments away from debtholders toward equityholders.

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File URL: http://www.dallasfed.org/assets/documents/research/er/1997/er9704a.pdf
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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1997)
Issue (Month): Q IV ()
Pages: 2-14

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Handle: RePEc:fip:fedder:y:1997:i:qiv:p:2-14
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  1. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  2. William D. Nordhaus, 1974. "The Falling Share of Profits," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(1), pages 169-218.
  3. Barry Bosworth, 1975. "The Stock Market and the Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 527-300.
  4. Carolyn D. Davis & Alice P. White, 1987. "Stock market volatility," Staff Studies 153, Board of Governors of the Federal Reserve System (U.S.).
  5. Leland E. Crabbe & Margaret H. Pickering & Stephen D. Prowse, 1990. "Recent developments in corporate finance," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 593-603.
  6. Gregory R. Duffee & Steven D. Prowse, 1996. "What's good for GM...? Using auto industry stock returns to forecast business cycles and test the Q-theory of investment," Finance and Economics Discussion Series 96-38, Board of Governors of the Federal Reserve System (U.S.).
  7. Duca, John V. & Vanhoose, David D., 1998. "The Rise of Goods-Market Competition and the Decline in Wage Indexation: A Macroeconomic Approach," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 579-598, July.
  8. Olivier J. Blanchard, 1993. "Movements in the Equity Premium," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 75-138.
  9. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-89, September.
  10. Alan J. Auerbach & James M. Poterba, 1987. "Why Have Corporate Tax Revenues Declined?," NBER Chapters, in: Tax Policy and the Economy, Volume 1, pages 1-28 National Bureau of Economic Research, Inc.
  11. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
  12. Robert J. Gordon, 1972. "Wage-Price Controls and the Shifting Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(2), pages 385-430.
  13. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
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