RESEARCH
Working Papers
Macroeconomics, Firm Dynamics and IPOs (Job Market Paper)
US firms in the 1970s faced very different economic conditions surrounding taxes, financing frictions, and uncertainty than firms in the 2000s. In this paper, I argue that these changes have asymmetric effects in privately held and publicly traded firms, and that this distinction is important in order to understand how they impact macroeconomic aggregates. I extend a model of firm dynamics with private and publicly traded firms, where I explicitly model the going public decision. The calibrated baseline matches some salient features of the firm distribution in the 1970s, and can reproduce the dynamics of TFP and sales around IPO date. The decrease in corporate taxes, distribution taxes and equity issuance costs from the 1970s to the 1990s contributes to the stock market boom: more firms become public, the median size at IPO decreases, and dispersion at IPO increases. Furthermore, these changes help explain payout, investment patterns, and the increase in savings observed in the data. The extensive margin, i.e. the IPO decision, explains half of the increase in stock market capitalization and has non-negligible macroeconomic effects. Concentration of employment rises, accentuated by the differential effect of taxes on public and private firms. I also explore how changes in the shock process, access to credit, taxes, and equity issuance costs affect the behaviour of firms from the 1970s to the 2000s. I find these changes have large macroeconomic effects: output increases 29%, TFP 18%, and concentration increases significantly. These changes also help explain payout, investment and savings patterns of the data, but they cannot explain the changes in selection into public since the 1990s.
Taxation and the Life Cycle of Firms (joint with Andrés Erosa) [ Online Appendix ] New Version!
In preparation for the Journal of Monetary Economics (Carnegie-Rochester-NYU Conference Series on Public Policy)
We extend the Hopenhayn and Rogerson (1993) framework of firm dynamics to understand how different forms of taxing capital income affect investment and financial policies over the life cycle of firms. Relative to dividends and capital gains taxation, corporate income taxation slows down growth over the life cycle by reducing after-tax profits available for reinvesting in the firm. It also diminishes entry by negatively affecting the value of entrants relative to the that of incumbents firm. After a tax reform eliminating the corporate income tax in a revenue neutral way, output and capital increase by 12% and 32%. The large response of firm entry to the tax reform is crucial for our results.
US firms in the 1970s faced very different economic conditions surrounding taxes, financing frictions, and uncertainty than firms in the 2000s. In this paper, I argue that these changes have asymmetric effects in privately held and publicly traded firms, and that this distinction is important in order to understand how they impact macroeconomic aggregates. I extend a model of firm dynamics with private and publicly traded firms, where I explicitly model the going public decision. The calibrated baseline matches some salient features of the firm distribution in the 1970s, and can reproduce the dynamics of TFP and sales around IPO date. The decrease in corporate taxes, distribution taxes and equity issuance costs from the 1970s to the 1990s contributes to the stock market boom: more firms become public, the median size at IPO decreases, and dispersion at IPO increases. Furthermore, these changes help explain payout, investment patterns, and the increase in savings observed in the data. The extensive margin, i.e. the IPO decision, explains half of the increase in stock market capitalization and has non-negligible macroeconomic effects. Concentration of employment rises, accentuated by the differential effect of taxes on public and private firms. I also explore how changes in the shock process, access to credit, taxes, and equity issuance costs affect the behaviour of firms from the 1970s to the 2000s. I find these changes have large macroeconomic effects: output increases 29%, TFP 18%, and concentration increases significantly. These changes also help explain payout, investment and savings patterns of the data, but they cannot explain the changes in selection into public since the 1990s.
Taxation and the Life Cycle of Firms (joint with Andrés Erosa) [ Online Appendix ] New Version!
In preparation for the Journal of Monetary Economics (Carnegie-Rochester-NYU Conference Series on Public Policy)
We extend the Hopenhayn and Rogerson (1993) framework of firm dynamics to understand how different forms of taxing capital income affect investment and financial policies over the life cycle of firms. Relative to dividends and capital gains taxation, corporate income taxation slows down growth over the life cycle by reducing after-tax profits available for reinvesting in the firm. It also diminishes entry by negatively affecting the value of entrants relative to the that of incumbents firm. After a tax reform eliminating the corporate income tax in a revenue neutral way, output and capital increase by 12% and 32%. The large response of firm entry to the tax reform is crucial for our results.
