Research | UNC Kenan-Flagler Business School

Global Ripple Effects of Corporate Tax Reforms

We study international spillovers of corporate tax reforms in a fragmented global tax regime. Using firm-level evidence on the 2017 U.S. Tax Cuts and Jobs Act (TCJA) and a quantitative general-equilibrium model, we illustrate how multinational enterprises (MNEs) propagate local policy shocks throughout the global economy. Our framework emphasizes two key intrinsic properties of intangible capital: non-rivalry and mobile ownership. We find the TCJA generated positive outward spillovers: First, it boosted U.S. MNEs’ intangible investment, raising their foreign subsidiaries’ output. Second, it increased tangible investment of foreign MNEs’ U.S. subsidiaries, incentivizing them to expand intangible investment at home. Conversely, a Global Minimum Tax (GMT) implemented by the rest of the world generates negative inward spillovers for the United States, even if U.S.-parented MNEs are exempt. These findings illustrate that there is no such thing as a purely domestic corporate tax policy.

Real Effects of External Innovation: Evidence from the Tax Cuts and Jobs Act

Firms increasingly rely on external sources of innovation -- such as technology licensing, purchases of intangible assets, and business acquisitions -- to augment their internal R&D. We study whether external innovation complements or substitutes internal R&D using the 2022 enforcement of Section 174 of the Tax Cuts and Jobs Act as an exogenous shock that raised the after-tax cost of internal R&D. Using a difference-in-differences design, we show that more R&D-intensive firms significantly increased externally sourced innovation -- measured comprehensively using acquired intangible assets -- without reducing internal R&D. These firms subsequently achieved higher innovative efficiency and originality, explored new technological domains, were more likely to generate breakthrough patents, and became more profitable. The effects are significantly weaker among financially constrained firms and those in highly competitive industries, consistent with limited ability to reallocate resources toward external innovation. Analysis of inventor- and patent-level data supports a synergy channel, whereby collaborations between newly hired and incumbent inventors and greater technological proximity between external and internal innovations enhance innovation productivity. Overall, our findings provide causal evidence that external innovation complements, rather than crowds out, internal R&D, and that fiscal shocks to R&D incentives can reallocate capital and talent toward more productive innovation activities.

Corporate Tax Reform and the Cost of Bank Loans: Evidence from the Tax Cuts and Jobs Act

This paper examines how the 2017 U.S. Tax Cuts and Jobs Act (TCJA), a landmark corporate tax reform, affected the pricing and structure of syndicated bank loans. Using a difference-in-differences approach, we compare U.S. firms, which were directly exposed to the reform, with a matched sample of non-U.S. firms around the TCJA’s enactment. We find that U.S. borrowers experienced a significant reduction in loan spreads following the reform, consistent with lenders updating their expectations of improved firm cash flows and creditworthiness. The decline in loan spreads is more pronounced among firms with greater foreign exposure, higher tax savings, and tighter ex ante financial constraints. Additionally, we document adjustments in U.S. borrowers’ non-pricing loan terms, including a higher likelihood of covenant-lite provisions and a reduced incidence of collateral and performance pricing requirements. Overall, our findings highlight the importance of corporate tax policy in shaping financial contracting in private credit markets.