Citation

Discussion Paper Details

Please find the details for DP13629 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: On the Macroeconomic and Fiscal Effects of the Tax Cuts and Jobs Act

Author(s): Philipp Lieberknecht and Volker Wieland

Publication Date: March 2019

Keyword(s): fiscal policy transmission, macroconomic modeling, Tax Cuts, tax reform and TJCA

Programme Area(s): Monetary Economics and Fluctuations

Abstract: There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, we find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In our analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. We show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13629

Bibliographic Reference

Lieberknecht, P and Wieland, V. 2019. 'On the Macroeconomic and Fiscal Effects of the Tax Cuts and Jobs Act'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13629