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Did the Tax Cuts and Jobs Act Create Jobs and Stimulate Growth?

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  • Anil Kumar

Abstract

The Tax Cuts and Jobs Act (TCJA) of 2017 is the most extensive overhaul of the U.S. income tax code since the Tax Reform Act of 1986. Existing estimates of TCJA’s economic impact are based on economic projections using pre-TCJA estimates of tax effects. I exploit plausibly exogenous state-level variation in tax changes from TCJA and find that an income tax cut equaling 1 percent of GDP led to a 1.2-percentage-point faster job growth and nearly 1.5 percentage points higher GDP growth over two years following the law change. While the estimates are imprecise, the overall pattern suggests that the TCJA stimulated economic growth. The estimates imply a two-year tax cut multiplier of 1.5 and a cost per job of $105,000. The estimated growth effect was driven by a nearly 1.3-percentage-point increase in the labor force participation rate.

Suggested Citation

  • Anil Kumar, 2020. "Did the Tax Cuts and Jobs Act Create Jobs and Stimulate Growth?," Working Papers 2001, Federal Reserve Bank of Dallas, revised 08 Aug 2023.
    • Handle: RePEc:fip:feddwp:86732
    DOI: 10.24149/wp2001r2
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    References listed on IDEAS

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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Karel Mertens & Morten O. Ravn, 2013. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States," American Economic Review, American Economic Association, vol. 103(4), pages 1212-1247, June.
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    Cited by:

    1. Macaulay, Alistair, 2021. "The attention trap: Rational inattention, inequality, and fiscal policy," European Economic Review, Elsevier, vol. 135(C).

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    More about this item

    Keywords

    Taxes and Economic Growth; Tax Cuts and Jobs Act;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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