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  • November 2020
  • Article
  • Management Science

The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth

By: Urooj Khan, Suresh Nallareddy and Ethan Rouen
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Abstract

We investigate the relation between the growth in corporate profits and the overall U.S. economy, focusing on the impact of the U.S. corporate tax regime on this relation. We document that the growth of corporate profits, on average, has outpaced the growth of the economy, and this disconnect increases as the difference between the corporate income tax rate of the U.S. and the other OECD countries increases. The underlying mechanism is fewer corporate profits being channeled into subsequent domestic investments when the U.S. tax rate is relatively higher, leading to lower economic growth. Our findings have implications for policy setters.

Keywords

Taxes; Gdp; Corporate Profits; American Jobs Creation Act Of 2004; Taxation; Economic Growth; Profit; United States

Citation

Khan, Urooj, Suresh Nallareddy, and Ethan Rouen. "The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth." Management Science 66, no. 11 (November 2020): 5427–5447.
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About The Author

Ethan C. Rouen

Accounting and Management
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More from the Authors
  • Passing the Mic: Career and Firm Outcomes of Executive Interactions By: Wei Cai, Ethan Rouen and Yuan Zou
  • Creating and Measuring Purpose at Viega By: Ethan Rouen, Suraj Srinivasan and James Barnett
  • Core Earnings: New Data and Evidence By: Ethan Rouen, Eric C. So and Charles C.Y. Wang
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