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The Welfare and Distributional Consequences of Corporate Tax Cuts in Open Economies

Mamoon Kader (), Hashmat Khan (), Minjoon Lee and Raul Razo-Garcia

No 22-08, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: We develop an open-economy heterogenous household model with incomplete markets to quantitatively evaluate the welfare and distributional effects - both within and across countries - of the recent corporate tax cut (Tax Cuts and Jobs Act, TCJA) in the U.S. The model allows for examining outcomes under various possibilities including the tax cut in the U.S. being permanent versus temporary and potential fiscal responses of other countries to the TCJA. We find that the TCJA is regressive in the U.S. and has relatively more regressive outcomes in other countries. Whether the wealth-poor in the U.S. benefit from the TCJA or not depends on the persistence of the tax cut. Finally, when a small country reduces its corporate tax in response to the TCJA, it has a progressive distributional result in its own economy.

Keywords: Tax Cuts and Jobs Act; Corporate tax cuts; Distributional effects (search for similar items in EconPapers)
JEL-codes: E62 F41 H25 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2022-08-31
New Economics Papers: this item is included in nep-pbe
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Published: Carleton Economics Working Papers

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