The macroeconomic effects of business tax cuts with debt financing and accelerated depreciation

Filippo Occhino

Economic Modelling, 2023, vol. 125, issue C

Abstract: This paper studies the macroeconomic effects of business tax cuts using a dynamic general equilibrium model that incorporates endogenous debt and equity financing, interest deductibility, and accelerated capital depreciation. A cut in the tax rate stimulates business investment and output persistently, but the size of the effects is small. On impact, a ten percentage point permanent tax cut raises investment and output by 2 percent and 0.4 percent, respectively. The cumulative tax multiplier ranges from −0.4 in the initial year to −0.6 after ten years. The model would predict more expansionary effects without debt financing and accelerated depreciation. The multiplier of investment tax credits is larger in absolute value than the tax rate multiplier. The multiplier of depreciation allowances is much smaller on impact than at long horizons.

Keywords: Interest deductibility; Tax shields; Tax multiplier; Dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: E32 E62 H25 H30 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999323001207
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:125:y:2023:i:c:s0264999323001207

DOI: 10.1016/j.econmod.2023.106308

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().