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The Macroeconomic Effects of the Tax Cuts and Jobs Act

Author

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  • Filippo Occhino

Abstract

This paper studies the macroeconomic effects of seven key TCJA provisions, including the tax cuts for individuals and businesses, the bonus depreciation of equipment, the amortization of R&D expenses, and the limits on interest deductibility. I use a dynamic general equilibrium model with interest deductibility and accelerated depreciation. I find that, initially, the tax reform had a small positive impact on output and investment. In the medium term, however, the effect on output will diminish, and the effect on investment will turn negative. The tax reform will depress investment in R&D. Government debt will surge.

Suggested Citation

  • Filippo Occhino, 2019. "The Macroeconomic Effects of the Tax Cuts and Jobs Act," Working Papers 201928, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:86641
    DOI: 10.26509/frbc-wp-201928
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    File URL: https://doi.org/10.26509/frbc-wp-201928
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    More about this item

    Keywords

    tax multiplier; financial frictions.; interest deductibility; Tax reform; accelerated depreciation;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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