Did the Tax Cuts and Jobs Act Create Jobs and Stimulate Growth?

Anil Kumar

No 2001, Working Papers from Federal Reserve Bank of Dallas

Abstract: The Tax Cuts and Jobs Act (TCJA) of 2017 is the most extensive overhaul of the U.S. income tax code since the Tax Reform Act of 1986. Existing estimates of TCJA’s economic impact are based on economic projections using pre-TCJA estimates of tax effects. I exploit plausibly exogenous state-level variation in tax changes from TCJA and find that an income tax cut equaling 1 percent of GDP led to a 1.2-percentage-point faster job growth and nearly 1.5 percentage points higher GDP growth over two years following the law change. While the estimates are imprecise, the overall pattern suggests that the TCJA stimulated economic growth. The estimates imply a two-year tax cut multiplier of 1.5 and a cost per job of $105,000. The estimated growth effect was driven by a nearly 1.3-percentage-point increase in the labor force participation rate.

Keywords: Taxes and Economic Growth; Tax Cuts and Jobs Act (search for similar items in EconPapers)
JEL-codes: E62 H30 (search for similar items in EconPapers)
Pages: 37
Date: 2020-01-03, Revised 2023-08-08
New Economics Papers: this item is included in nep-lma, nep-mac, nep-pbe and nep-pub
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DOI: 10.24149/wp2001r2

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