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The macroeconomic effects of the tax cuts and jobs act

Published online by Cambridge University Press:  15 July 2022

Filippo Occhino
Filippo Occhino*
Affiliation:
Kennesaw State University
*
Email: focchino@kennesaw.edu
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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 effect 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 reforminterest deductibilityaccelerated depreciationfinancial frictionsE32E62H24H25H30
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 6 , September 2023 , pp. 1495 - 1527
Copyright
© The Author(s), 2022. Published by Cambridge University Press

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Footnotes

*

I thank the Associate Editor, two anonymous referees, Mike Bordo, Roberto Chang, Todd Clark, Bob DeYoung, Isil Erel, Martin Gervais, Pablo Guerron, Kinda Hachem, Debbie Lucas, Kurt Lunsford, Aaron Mehrotra, Vincenzo Quadrini, Eric Sims, Willem Van Zandweghe, Mike Waugh, and seminar participants at the Congressional Budget Office, the European Economic Association annual congress, the Federal Reserve Bank of Cleveland, the International Banking, Economics and Finance Association summer meeting, Kennesaw State University, the Society for Nonlinear Dynamics and Econometrics symposium, and the World Congress of the Econometric Society for their helpful comments.

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