- Agency Problems in Public Firms: Evidence from Corporate Jets in
Leveraged Buyouts (Journal of Finance, 2012)
This paper uses novel data to examine the fleets of corporate jets operated by both
publicly traded and privately held firms. In the cross-section, firms owned by private
equity funds average 40% smaller fleets than observably similar public firms. Similar
fleet reductions are observed within firms that undergo leveraged buyouts. Quantile
regressions indicate that these results are driven by firms in the upper 30% of the conditional jet distribution. Results thus suggest that executives in a substantial minority
of public firms enjoy excessive perquisite and compensation packages.
The Independent (UK),
Dagens Industri (Sweden).
Data: JetNet.com. Some data are also available from the FAA.
- Four Facts about Dividend Payouts and the 2003 Tax Cut (International Tax and Public Finance, 2012)
Recent literature has claimed that the 2003 U.S. dividend tax cut caused a large increase in aggregate dividend payouts.
I document four simple facts that call this claim
into question. First, the post-tax cut increase in dividend payouts coincided with a
surge in corporate profits, such that the dividend payout ratio did not rise. Second,
share repurchases increased even more rapidly than dividend payouts. Third, dividend
payouts by Real Estate Investment Trusts also rose sharply, even though they did not
qualify for reduced taxation. Finally, the stock market was forecasting an increase in
dividend initiations by mid-2002, before the tax cut had been proposed.
Related: Updated chart of aggregate ratio of dividends
to corporate profits from the national accounts. Can you see the effect of the tax cut in 2003? (Note that these
data include REIT dividends and S corporation distributions.)
- Investment Incentives
and Corporate Tax Asymmetries (Journal of Public Economics, 2010)
Recent facts on the importance of corporate losses motivate more careful
study of the impact of tax incentives for investment on
firms that lose money. I model firm investment decisions in a setting
featuring financing constraints and carrybacks and carryforwards of
I estimate investment responses to tax incentives allowing effects to
cash flows and taxable status.
Results suggest that asymmetries in the corporate tax code could have
made recent bonus depreciation tax incentives at most 4% less effective
they would have been if all firms were fully taxable.
Cash flows have more important effects on the impact of tax incentives.
Recent declines in cash flows would predict a 24% decrease in the
effectiveness of bonus depreciation.
Results thus suggest that tax incentives have the smallest impact on
investment exactly when they are most likely to be put in place—during
economic activity when cash flows are low.
- Revenue Implications of New York City’s Tax System, with Andrew Haughwout and Rae Rosen.
(Current Issues in Economics and Finance: Second District Highlights, April 2004)
A study of New York City’s tax system finds that over the past three
decades, the system has become less reliant on property and general
and more dependent on corporate and personal income taxes. This shift
has made the city’s tax revenues less stable than the revenues of the
more sensitive to cyclical swings.
- Institutions, Tax Structure and
State–local Fiscal Stress, with Andrew Haughwout and Rae Rosen.
(National Tax Journal, March 2004)
We discuss budgetary institutions and the evolution
of tax systems in the state and local sector, drawing on evidence
from New York City. An increasing reliance on personal income
taxes and a corresponding de–emphasis on property taxes have
made the city’s tax revenues significantly less stable and more
sensitive to fluctuations in the city’s economy. Nonetheless, adjusting
the personal income tax rate to smooth revenues over the
business cycle may be an effective way of transferring cyclical
shocks from an actor who faces borrowing constraints (the city or
state) to actors who do not face such constraints (upper income
- Investment, Accounting, and the Salience of the Corporate Income
Tax (FEDS Working Paper)
This paper develops and tests the hypothesis that accounting rules mitigate the
impact of tax policy on investment decisions by obscuring the timing of tax payments.
I model a firm that maximizes a discounted weighted average of after-tax cash flows and
accounting profits. The cost of capital and the impact of tax incentives for investment
both depend on the weight placed on accounting profits. I estimate this weight by
comparing the effectiveness of tax incentives that do and do not affect accounting
profits. Investment tax credits, which do affect accounting profits, have more impact on
investment than accelerated depreciation, which does not. This difference in estimated
impact is not obviously driven by discounting, cash flow effects, or measurement error.
Results thus suggest that the tax burden on corporate capital could be lower than
we would otherwise estimate, and accelerated depreciation provisions are less effective
than they otherwise would be.
- Estimating Machinery Supply Elasticities Using Output Price Booms (FEDS Working Paper)
Recent years have seen large increases in the prices of houses, farm products, metals,
and oil, often with little clear connection to economic fundamentals. These price
increases created plausibly exogenous shifts in demand for construction, farm, and
mining machinery. This paper uses these demand shifts to estimate the elasticity of
machinery supply. Graphical evidence, OLS, and IV estimates all indicate that the
quantity of machinery supplied increased rapidly during the booms, with only modest
increases in prices. Pooled sample estimates of the supply elasticity are around 5, much
larger than the estimate of 1 from Goolsbee . Results thus suggest that public
policies that stimulate investment demand will have only modest effects on the prices
of investment goods.
- Taxes and Business Investment: New Evidence from Used Equipment
This paper uses data on transaction prices of used farm machinery,
aircraft, and construction machinery to examine the impact and
incidence of tax incentives for investment. Theory predicts that
incentives applying only to new investment should drive
a wedge equal to the value of the incentives between the prices of new
equipment and equally productive used equipment.
Evidence from the repeal of the investment tax credit in the Tax Reform
Act of 1986 produces a large and significant estimated effect
of the ITC on the relative price of used farm machinery, with similar,
but less robust, results for aircraft. The estimated
effect of recent bonus depreciation incentives on the price of used
construction machinery is close to zero, however, suggesting
that bonus depreciation had little value to machinery buyers.
- Credit Supply and Business Investment During the Great Recession: Evidence from Public Records of Equipment Financing
It is often asserted that the financial crisis of 2008 caused a recession in the real
economy by restricting the supply of credit to firms and households, but this view has
been questioned by several researchers. This paper uses novel data on lending relationships
from Uniform Commercial Code filings of loans secured by business equipment
to measure how lender distress affected firm-level investment outcomes after the crisis.
In specifications that compare firms in the same county-industry-size cell, I find that
firms that were dependent on lenders that experienced the most distress during the
crisis financed significantly less equipment than average firms after the crisis, despite
a considerable amount of substitution toward non-distressed lenders. Variation across
lenders can account for a 17% decline in aggregate equipment financing, or about one
third of the total decline in financing in the sample of small businesses used in the paper.
Work in Progress:
- Financing Frictions and the Efficacy of Tax Incentives: Evidence from Cash Grants for Renewable Energy Investments (with Jim Sallee)