IDEAS home Printed from https://ideas.repec.org/a/ucp/tpolec/doi10.1086-740382.html

Firm Investment and the User Cost of Capital: New US Corporate Tax Reform Evidence

Author

Listed:
  • Jonathan S. Hartley
  • Kevin A. Hassett
  • Joshua D. Rauh

Abstract

The Tax Cuts and Jobs Act of 2017 (TCJA) marked the first time in 3 decades that material changes were made to the corporate tax code of the United States. Following the method of Auerbach and Hassett (1991), we use the TCJA as a natural experiment to estimate the impact of changes in user cost of capital on investment. Using cross-sectional data, we find that the user cost is associated with higher rates of investment consistent with previous studies. Bureau of Economic Analysis asset types with greater reductions in user cost of capital and marginal effective tax rate after the 2017 TCJA had greater increases in their investment rates several years after the tax reform, with individually statistically significant coefficients in half of the post-TCJA years. On average across years, we find the magnitude of a 1-percentage-point decrease in user cost is associated with a statistically significant 1.86-percentage-point increase in the rate of investment. This translates into an investment elasticity of −2.11, about 3 times the investment response assumed in Congressional Budget Office models.

Suggested Citation

  • Jonathan S. Hartley & Kevin A. Hassett & Joshua D. Rauh, 2026. "Firm Investment and the User Cost of Capital: New US Corporate Tax Reform Evidence," Tax Policy and the Economy, University of Chicago Press, vol. 40(1), pages 171-206.
    • Handle: RePEc:ucp:tpolec:doi:10.1086/740382
    DOI: 10.1086/740382
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/740382
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/740382
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/740382?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:tpolec:doi:10.1086/740382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/TPE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.