2 February 2018
This Quantitative Note uses the OG-USA open source dynamic general equilibrium overlapping generations model to simulate the effect of the Tax Cuts and Jobs Act. We simulate this reform under the assumptions of a closed economy and small open economy. In both cases, the TCJA reform causes significant growth in GDP and employment between 1% and 2% per year in the first 8 years. However, the increasing debt-to-GDP ratio quickly crowds out investment and causes a drag on the economy. Wage growth can range from nearly nonexistent to a modest 0.6%, depending critically on the assumption of how much capital will flow into the country.
Jason DeBacker is an assistant professor of economics at the University of South Carolina, an economist with the Open Source Policy Center, and he was formerly a financial economist in the Treasury’s Office of Tax Analysis. Jason is a core maintainer of the open source models B-Tax and OG-USA, which model business taxes and macroeconomic effects of tax policy, respectively. His research focuses on tax policy and firm dynamics.
Richard Evans is a Senior Lecturer at the University of Chicago M.A. Program in Computational Social Science, Director of the Open Source Macroeconomics Laboratory (OSM Lab) at the University of Chicago, a Fellow with the Becker Friedman Institute at the University of Chicago, and an economist with the Open Source Policy Center (OSPC). Rick is also President of Open Research Group, Inc. (OpenRG). Rick is a core maintainer of the OG-USA open source macroeconomic model for dynamic tax analysis. His research focuses on macroeconomics, fiscal policy, and computational modeling.