Quantitative Notes (Page 3 of 4)

Dynamic Analysis of Corporate Income Tax Rate Cut

This Quantitative Note uses the OG-USA open source dynamic general equilibrium overlap- ping generations model to simulate the effect of cutting the U.S. corporate income tax rate from 35% to 20%. I simulate this rate cut under the assumptions of a closed economy and small open economy, respectively. In both cases, the corporate rate cut causes government revenues to decrease and the debt-to-GDP ratio to increase. In the small open economy scenario, GDP and wages increase by around 3.0%, and 2.5%, respectively. However, in the closed economy setting in which the increased debt service must be satisfied by domestic savings (crowding out), the GDP and wage gains are much smaller and short lived.

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Government Revenue and Distributional Effects of Tax Cuts and Jobs Act

We simulate the effects of the Tax Cuts and Jobs Act (TCJA) using the Tax-Calculator open source microsimulation model. Our simulation predicts that the TCJA will reduce government revenues by nearly $460 billion over the next 10 years without factoring in the additional lost revenue from cutting the corporate income tax rate, reducing the estate tax, and removing the individual mandate provision of the Affordable Care Act. We also describe the effects of the TCJA on the distribution of tax filers.

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Estimating the Effects of Business Tax Reform on Output

Tax policy can have strong effects on the incentives to invest. This note describes a simple approach to approximate the effects of tax policy on investment and output using open source data and models.

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