Capital Reallocation and Private Firm Dynamics / Anmol Bhandari, Paolo Martellini, Ellen McGrattan.

Format:

Book

Author/Creator:

Bhandari, Anmol.

Contributor:

Martellini, Paolo.

McGrattan, Ellen.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w34319.

NBER working paper series no. w34319

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2025.

Summary:

This paper develops a theory of private firms whose primary business capital is internally created, cannot be rented, and is reallocated through infrequent, indivisible sales. The equilibrium allocation is efficient but exhibits dispersion in marginal products, returns, and transferable shares of business value. U.S. tax data are used to estimate technology parameters and evaluate tax reforms. An undistorted tax system uniformly taxes labor income, business income, and realized gains, while fully expensing purchased and internal investment. Under current tax bases, eliminating capital-gains taxation yields the lowest deadweight loss among a range of simple reforms, by increasing entry and capital reallocation.

Notes:

October 2025.

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