The Macroeconomic Effects of Corporate Tax Reforms

52 Pages Posted: 11 Feb 2022 Last revised: 3 Jan 2024

Date Written: February 15, 2023


This paper documents a dual response of the US economy to two major corporate tax cuts. The recent Tax Cuts and Jobs Act (TCJA-17) was followed by a large increase in payouts to shareholders, but not by major stimulus to investment and production. The Kennedy's tax cuts of the early 1960s, instead, were followed by a large increase in output and capital accumulation, but not in payouts to shareholder. To rationalize this duality, I extend a standard macroeconomic framework with a corporate tax code featuring two key elements: tax depreciation policy and the distinction between c-corporations and pass-through businesses. In the model, the stimulative effect of a tax rate cut on c-corporations is smaller the more tax depreciation policy is accelerated, and is diluted in the aggregate by the presence of pass-through businesses. Because of highly accelerated tax depreciation and a large pass-through share in 2017, the model predicts modest aggregate stimulus and large payout distributions as a result of the TCJA-17. At the same time, because of less accelerated tax depreciation and a lower pass-through share in the early 1960s, the theory predicts sizable stimulus and a small increase in payouts in response to the Kennedy's corporate tax cuts. Overall, the model-implied corporate tax multiplier for the Kennedy's tax cuts is four times as high as that for the TCJA-17, mainly due to pre-reform differences in tax depreciation policy.

Keywords: Corporate Tax, Macroeconomics, Tax Depreciation, Pass-Through Businesses

JEL Classification: E06, H02, H06

Suggested Citation

Furno, Francesco, The Macroeconomic Effects of Corporate Tax Reforms (February 15, 2023). Available at SSRN: or

Francesco Furno (Contact Author)

Amazon Web Services, Inc. ( email )

New York, NY
United States

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