On the corporate tax reform: Coordination and trade-offs

Teegawende Zeida

Journal of Macroeconomics, 2019, vol. 62, issue C

Abstract: The enactment of the Tax Cuts and Jobs Act in 2017 in the US, specifically the large tax cut provision for corporate businesses is a major overhaul since the Tax Reform Act of 1986. However, the reform is not revenue neutral. This paper assesses the revenue-neutral trade-offs when the government finances a corporate tax cut using labor income tax, dividend tax, and capital gains taxes as instruments. I construct a parsimonious general equilibrium model to derive the balanced fiscal multipliers associated with a corporate tax reform. Using a standard calibration, I show that both labor income tax and dividend tax multipliers are negative, suggesting a trade-off between a corporate tax cut and these two tax rates. On the other hand, the multiplier related to the capital gains tax is positive, which predicts a coordination of a double cut in both corporate and capital gains tax rates.

Keywords: Tax reform; Corporate; Revenue neutral; Balanced fiscal multiplier (search for similar items in EconPapers)
JEL-codes: E62 G30 H20 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:62:y:2019:i:c:s0164070419300795

DOI: 10.1016/j.jmacro.2019.103156

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