Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/195061
Authors: 
Lieberknecht, Philipp
Wieland, Volker
Year of Publication: 
2019
Series/Report no.: 
IMFS Working Paper Series 131
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, the authors 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 the analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. The show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect.
Subjects: 
tax reform
corporate taxes
capital taxes
labor income taxes
spending cuts
fiscal stimulus
JEL: 
E62
E63
E65
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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