The Near Term Growth Impact of the Tax Cuts and Jobs Act

16 Pages Posted: 27 Jul 2018 Last revised: 29 Apr 2020

See all articles by Karel Mertens

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas

Date Written: 2018-03-23

Abstract

This note uses existing empirical estimates of the macroeconomic effects of tax changes to project the near term impact of the Tax Cuts and Jobs Act on US GDP growth. Applying recent reduced form estimates of tax multipliers with the projected revenue impact of the Act yields a level of GDP that is predicted to be 1.3% higher by 2020, with most of the growth front-loaded in 2018. Accounting for the composition of the Act in terms of its individual and corporate provisions leads to a similar GDP increase by 2020, but with stronger growth in 2018 and a partial reversal in the following years. Accounting for the impact of TCJA on marginal individual tax rates raises the projected growth impact considerably, while accounting for the distribution of the tax changes across income groups suggests a more delayed positive impact on GDP. These projections are conditional on mean-reverting dynamics of future taxes that are estimated from postwar US data.

Keywords: Fiscal policy, Taxation, Tax Cuts and Jobs Act

JEL Classification: E62, H2

Suggested Citation

Mertens, Karel, The Near Term Growth Impact of the Tax Cuts and Jobs Act (2018-03-23). FRB of Dallas Working Paper No. 1803, Available at SSRN: https://ssrn.com/abstract=3219523 or http://dx.doi.org/10.24149/wp1803

Karel Mertens (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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