NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation, Taxation, and Corporate Behavior

Roger H. Gordon

NBER Working Paper No. 588
Issued in December 1980
NBER Program(s):   PE

During the past decade, the inflation rate has been very high by historical standards, yet the U.S. tax law has yet to adjust to this fact. The purpose of this paper is to investigate to what degree the lack of indexing of the corporate and personal income taxes by itself ought to have resulted in a change in corporate investment and financial policy, and in capital gains or losses to existing owners of corporate equity. In studying these questions, the paper models corporate financial and real decisions simultaneously, unlike other recent studies. The principle conclusions of the paper are: 1) the doubling of corporate debt-value rations can easily be rationalized solely by the interaction of inflation and the tax laws, 2) the stock market and the level of investment behaved much less favourably than would have been forecast focusing solely on the increased inflation rate, and 3) more pessimistic expectations, perhaps in combination with increased riskiness, would provide a consistent rationale for observed behaviour.

download in pdf format
   (727 K)

email paper

This paper is available as PDF (727 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0588

Published: Gordon, Roger H. "Inflation, Taxation, and Corporate Behavior." Quarterly Journal of Economics, Vol. 99, No. 2, May 1984, pp. 313-327. citation courtesy of

 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us