Working Paper: NBER ID: w19757
Authors: Hans Fehr; Sabine Jokisch; Ashwin Kambhampati; Laurence J. Kotlikoff
Abstract: We simulate corporate tax reform in a single good, five-region (U.S., Europe, Japan, China, India) model, featuring skilled and unskilled labor, detailed region-specific demographics and fiscal policies. Eliminating the model's U.S. corporate income tax produces rapid and dramatic increases in the model's level of U.S. investment, output, and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating tax loop-holes.
Keywords: corporate income tax; tax reform; economic growth; welfare effects; multiregion model
JEL Codes: F0; F20; H0; H2; H3; J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Eliminating the corporate income tax (K34) | Increase in US capital stock (E22) |
| Increase in US capital stock (E22) | Higher labor productivity (J24) |
| Higher labor productivity (J24) | Increase in real wages for skilled workers (J31) |
| Higher labor productivity (J24) | Increase in real wages for unskilled workers (F66) |
| Eliminating the corporate income tax (K34) | Increase in GDP in the short term (E20) |
| Eliminating the corporate income tax (K34) | Sustained increase in GDP in the intermediate term (E20) |
| Eliminating the corporate income tax (K34) | Sustained increase in GDP in the long term (E20) |
| Eliminating the corporate income tax (K34) | Pareto improvement across generations (D69) |
| Welfare gains for those born after 2000 (D69) | Estimated at 8-9% (C80) |
| Eliminating the corporate income tax (K34) | Modest welfare losses for older generations (J26) |
| Eliminating the corporate income tax (K34) | Welfare losses for foreign workers (F66) |