More John Cochrane on the corporate tax burden

Here is a long and very interesting post with many distinct points.  Here is one of them:

So the entire corporate tax is pre-paid, or borne, by the stockholders who are unfortunate enough to be around when the corporate tax is announced.  Anyone who buys shares after the corporate tax is imposed gets the shares at a lower price, so his or her return is entirely unaffected by the corporate tax.

People who buy shares after the corporate tax is imposed bear no burden of the tax. The corporate tax does not affect the rate of return received by current owners at all, because they got to buy at low prices.

So much for corporate taxes soaking the rich. This is an important fact, missing in all the distributional analysis I have seen.

Here is another:

Pietro Peretto reminds me there is an active literature on optimal taxation in endogenous-growth economies, including his Corporate taxes, growth and welfare in a Schumpeterian economy , Schumpeterian Growth with Productive Public Spending and Distortionary TaxationThe Growth and Welfare Effects of Deficit-Financed Dividend Tax Cuts and Implications of Tax Policy for Innovation and Aggregate Productivity Growth.  Nir Javinovich and Sergio Rebelo have a nice recent “Nonlinear effects of taxation on growth,” in the JPE, Nancy Stokey and Sergio have “Growth effects of flat-rate taxes” also in the JPE, and I have inside information that Chad Jones is working on it too. So, there is no lack of academic literature on the question just which kinds of taxes reduce growth, which of course leads to huge distortions.

Worth a full read.


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