The Trump administration’s tax cuts have had little direct impact on business investment decisions, according to an analysis by the International Monetary Fund, which runs contrary to the White House’s portrayal of lower corporate rates as a boon for capital spending.

Almost all growth in business investment since 2017 can be attributed to private-sector expectations that strong sales growth will continue — in part because of the personal income tax cuts that boosted demand — rather than the tax incentive for companies, IMF economists Emanuel Kopp, Daniel Leigh and Suchanan Tambunlertchai said in a blog post Thursday. They cited the findings of their recent study, which was also incorporated into the institution’s latest report on the U.S. economy in June.

The tax reductions may also be having a smaller effect on investment than expected because of the decades-long rise of corporate concentration in industries including airlines, pharmaceuticals and technology, the authors said. They said that because such companies already hold market power, they aren’t necessarily re-investing their earnings in production and other business areas.

“The bottom line is: strong demand since the passage of the Tax Cuts and Jobs Act has been the principal driver behind corporate investment decisions — not the reduction in the cost of capital coming from the corporate tax cuts themselves,” the authors wrote. “Moreover, the rise in corporate market power in recent decades appears to have muted the effectiveness of corporate tax cuts as a means for boosting business investment.”


U.S. economic growth slowed in the second quarter to a 2.1% annualized pace as already-tepid business investment fell for the first time in three years.

The law passed by Republicans in 2017 cut the corporate tax rate to 21% from 35% and moved toward a “territorial system” under which companies pay the U.S. banner rate on domestic profits only. The law included a minimum tax so corporations operating in low- or no-tax countries still pay some tax on their earnings.

“With supply-side tax cuts and the rollback in regulations and opening of energy and so forth, we are producing very significant growth with virtually no inflation,” President Trump’s economics advisor Larry Kudlow told CNBC in December.

The U.S. trade tensions with China and other nations are further curbing investment growth. “Policymakers can support further growth in business investment by reducing economic policy uncertainty, including by resolving trade-related tensions,” the IMF post said.