Tax Policy and Investment in a Global Economy

We evaluate the 2017 Tax Cuts and Jobs Act by combining reduced-form estimates from tax data with a global investment model. Firms exposed to larger domestic tax cuts increased domestic investment relatively more. U.S. multinationals subject to novel foreign tax incentives increased foreign capital and further boosted domestic investment, indicating complementarity between domestic and foreign capital. In our general equilibrium model calibrated to match the reduced-form evidence, short-run domestic corporate investment increases 10% and long-run capital rises 6%. The tax revenue feedback from growth offsets 7% of the mechanical revenue loss from the tax cut.