Using Administrative Data to Study U.S. Private Business Investment

This award funds research that seeks to shed light on private business investment. Privately-owned firms account for over half of US business net income and are central to studies of economic growth, wealth, and public finance. Yet little is known about their activities-most importantly, the investments these businesses make to generate significant incomes and wealth for their owners. The primary reason is that most private-business assets are intangibles that are self-created by the owners and do not appear on any balance sheet until the businesses are sold. Data from sales of businesses show that these assets account for most of the purchase price and include intangibles such as customer lists, trade names, workforce in place, know-how, and goodwill. The overall goal of the project is to develop new theory that can be used to measure these latent investments and ultimately to study their role for tax administration and policy design.The project would advance the state of our empirical knowledge in two ways: (1) by constructing longitudinal panels of business and their owners in order to track business activities over time and (2) by quantifying the role of business investments in generating significant incomes and wealth for these businesses and their owners. The current state of knowledge about private business investment is lacking because it is based on business surveys with limited longitudinal panels and limited information on business assets or transfers. The projects would advance the state of our theoretical knowledge by developing theory that explicitly incorporates self-created intangibles that are transferable upon sale, and theoretical predictions that can be directly tested by comparing simulated tax filings to actual ones.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.