Spent and Taxed
Government Subsidies and Corporate Misconduct
Aneesh Raghunandan
Journal of Accounting Research, September 2024, Pages 1449-1496
Abstract:
I study whether firms that receive targeted U.S. state-level subsidies are more likely to subsequently engage in corporate misconduct. I find that firms are more likely to engage in misconduct in subsidizing states, but not in other states that they operate in, after receiving state subsidies. Using data on both federal and state enforcement actions, and exploiting the legal principle of dual sovereignty for identification, I show that this finding reflects an increase in the underlying rate of misconduct and that this increase is attributable to lenient state-level misconduct enforcement. Collectively, my findings present evidence of an important consequence of targeted firm-specific subsidies: nonfinancial misconduct that potentially could impact the very stakeholders subsidies are ostensibly intended to benefit.
The effect of the Tax Cuts and Jobs Act of 2017 on corporate investment
Steven Crawford & Garen Markarian
Journal of Corporate Finance, August 2024
Abstract:
This study examines the impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on U.S. corporate investment. We examine U.S. firms and compare them to Canadian firms from 2010 to 2019 in a multivariate firm fixed-effects difference-in-differences analysis. Our results indicate that investment increases for U.S. firms relative to Canadian firms after the tax cuts. We also find that capital intensive and financially constrained firms increase investment the most. We explore how the TCJA impacted firm payouts and find some evidence that the tax cuts are associated with increased dividends. The paper contributes to the literature by providing evidence on the effects of the TCJA on corporate investment which have been debated extensively by politicians, journalists, tax policy experts, and academics.
Urban roadway in America: The amount, extent, and value
Erick Guerra, Gilles Duranton & Xinyu Ma
NBER Working Paper, August 2024
Abstract:
We predict the amount, share, and value of land dedicated to roadways within and across 316 US Primary Metropolitan Statistical Areas. Despite the amount and value of land dedicated to roadway, our study provides the first such estimate across a broad range of metropolitan areas. Our basic approach is to estimate roadway widths using a 10% sample of widths provided by the Highway Performance and Monitoring System and apply our estimates to the rest of the roadway system. Multiplying estimated widths by segment length and netting out double counting at intersections provide estimates of land area. We also match roadway segments and areas to existing land value estimates and satellite-based measures of urbanized land. We find that a little under a quarter of urbanized land -- roughly the size of West Virginia -- is dedicated to roadway. This land was worth around $4.1 trillion dollars in 2016 and had an annualized value that was higher than the total variable costs of the trucking sector and the total annual federal, state, and local expenditures on roadway. Conducting a back-of-the-envelope cost-benefit analysis, we found that the country likely has too much land dedicated to urban roads.
A SALT on real estate? Housing market and migration responses to the limit on the state and local tax deduction
Lawrence Kessler & Donald Bruce
Contemporary Economic Policy, forthcoming
Abstract:
The 2017 Tax Cuts and Jobs Act placed a $10,000 limit on the deductibility of state and local taxes (SALT) for federal tax purposes. This policy change likely increased the cost of home ownership for some households in high-tax areas. We examine whether these costs were capitalized into the local housing market through slower growth in housing prices. Motivated by the argument that the SALT cap caused some taxpayers to relocate, we also examine whether the cap influenced interstate migration patterns. The cap led to a sizable reduction in home price growth but had no discernable impact on state-to-state migration.
The Deterrence Effects of Tax Whistleblower Laws: Evidence from New York's False Claims Acts
Yoojin Lee et al.
Management Science, forthcoming
Abstract:
In this study, we provide evidence on the effects of state tax whistleblower laws. We exploit a novel 2010 amendment to New York's False Claims Acts (FCA) that explicitly extended whistleblower incentives to corporate income tax whistleblowers. We identify treated firms (firms exposed to New York's FCA) using establishment-level data and descriptive analyses. Using a sample of firms exposed to New York and neighboring states, we find evidence that New York's FCA reduced state tax avoidance. In cross-sectional tests, we find that effects are increasing in firms that grant fewer employee stock options and industry regulation, consistent with deterrence increasing in employee and regulator monitoring. We also find evidence that New York's FCA deterred federal tax avoidance, consistent with positive vertical tax externalities. Next, we focus on particular tax strategies and find evidence of a reduced probability of Double Irish tax structures, reduced relationships to tax planning banks, reduced use of special purpose vehicles, and reduced outbound tax-motivated income shifting. We also find evidence that firms with the lowest (highest) cost of relocation (1) reduced (did not change) establishment counts in New York but (2) did not change (reduced) state tax avoidance. Finally, we disentangle general ex ante deterrence from ex ante peer deterrence using hand-collected New York tax whistleblower press releases from the Attorney General. We find evidence of both types of deterrence. Overall, this study provides policy-relevant evidence on the deterrence effects of tax whistleblower laws.
Show Your Hand: The Impacts of Fair Pricing Requirements in Procurement Contracting
Brad Nathan
Journal of Accounting Research, September 2024, Pages 1405-1448
Abstract:
This paper studies how a federal procurement regulation, known as the Truth in Negotiations Act (TINA), affects the competitiveness and execution of government contracts. TINA stipulates how contracting officials (COs) can ensure reasonable prices. Following TINA, for contracts above a certain size threshold, COs can no longer rely solely on their own judgment that a price is reasonable. Instead, they must either require suppliers to provide accounting data supporting their proposed prices or expect multiple bids. Using a regression discontinuity design, I find that above-threshold contracts experience greater competition (i.e., more bids), improved performance (i.e., less frequent renegotiations and cost overruns), and reduced use of the harder-to-monitor cost-plus pricing, compared to below-threshold contracts. These findings suggest that TINA's requirements enhance competition and oversight for above-threshold contracts.
Credit When You Need It
Benjamin Collier et al.
NBER Working Paper, August 2024
Abstract:
We estimate the causal effect of emergency credit on households' finances after a negative shock. To do so, we link application data from the U.S. Federal Disaster Loan program, which provides loans to households that have uninsured damages from a federally-declared natural disaster, to a panel of credit records before and after the shock. We exploit a discontinuity in the loan approval rules that led applicants with debt-to-income ratios below 40% to be differentially likely to be approved. Using an instrumented difference-in-differences research design, we find that credit provision at the time of a shock significantly reduces severe financial distress, decreasing the likelihood of filing for bankruptcy by 61% in the three years following the disaster. We explore mechanisms using additional quasi-experimental variation in interest rates, finding support for a liquidity-based explanation. Credit provision in a time of crisis has real consumption effects in the form of additional car purchases even 3 years after loan receipt. Our findings suggest that well-timed liquidity provided to households in acute need can have substantial and persistent positive effects.
R&D tax credits and innovation
Walter Melnik & Andrew Smyth
Journal of Public Economics, August 2024
Abstract:
Previous work suggests that research and development (R&D) tax credits increase R&D expenditure. We exploit the staggered adoption of state-level R&D tax credits in the United States to examine their effect on innovation itself. In particular, we consider ten commonly-studied patent characteristics that have received little or no attention in the extant literature on R&D incentives. Our empirical approach suggests that R&D tax credits reduce the user cost of R&D and increase R&D expenditure, but we find no aggregate evidence that such credits increase patenting in credit-adopting states. Nor do credits increase the scientific quality of patents, as captured by patent citations. On the other hand, R&D tax credits increase patent novelty and we see large and significant increases in the market value of patents in credit-adopting states. All of our aggregate results are driven by states with larger effective credits and by larger firms, because such firms produce the vast majority of patents. These results have important implications for R&D public policy.
The labor effects of R&D tax incentives: Evidence from VC-backed startups
Jun Chen & Shenje Hshieh
Review of Finance, forthcoming
Abstract:
We evaluate the impact of the Protecting Americans from Tax Hikes (PATH) Act of 2015, which allowed some existing venture-capital-backed startups to monetize their research and development (R&D) tax credits against payroll taxes in the United States. We show that marginally eligible startups increase their demand for R&D workers more than marginally ineligible startups after the PATH Act's enactment. These effects are stronger among startups that are financially constrained. Marginally eligible startups subsequently recruit workers with more education and experience and file more patents with new inventors. Our findings suggest payroll tax credits are effective in scaling startups and stimulating R&D activities through skilled labor recruitment.
Tax Incentives for Charitable Giving: New Findings from the TCJA
Xiao Han, Daniel Hungerman & Mark Ottoni-Wilhelm
NBER Working Paper, July 2024
Abstract:
The Tax Cuts and Jobs Act eliminated federal charitable giving incentives for roughly 20 percent of US income-tax payers. We study the impact of this on giving. Basic theory and our empirical results suggest heterogeneous effects for taxpayers with different amounts of itemizable expenses. Overall, the reform decreased charitable giving by about $20 billion annually. Using a new method to adjust estimates for retimed giving, we find evidence of moderate intertemporal shifts from pre-announcement of the law. The permanent price elasticity of giving estimates range from .6 for the average donor to over 2 for those predicted to be most responsive to the reform.