The Macroeconomic Effects of the Tax Cuts and Jobs Act

52 Pages Posted: 16 Dec 2019

See all articles by Filippo Occhino

Filippo Occhino

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: December 13, 2019

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.

Keywords: Tax reform, tax multiplier, interest deductibility, accelerated depreciation, financial frictions

JEL Classification: E32, E62, H24, H25, H30

Suggested Citation

Occhino, Filippo, The Macroeconomic Effects of the Tax Cuts and Jobs Act (December 13, 2019). FRB of Cleveland Working Paper No. 19-28. Available at SSRN: https://ssrn.com/abstract=3503546 or http://dx.doi.org/10.2139/ssrn.3503546

Filippo Occhino (Contact Author)

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

East 6th & Superior
Cleveland, OH 44101-1387
United States

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