# The Macroeconomic Effects of Corporate Tax Reforms

**Authors:** Francesco Furno  
**arXiv:** [2111.12799](https://arxiv.org/abs/2111.12799)  
**Date:** 2021-11-24  
**Summary page:** https://www.summarizepaper.com/en/paper/2111.12799v1/

## Key points

- The paper extends a standard general equilibrium framework to analyze the macroeconomic effects of corporate tax reforms
- Two key elements analyzed are tax depreciation policy and the distinction between c-corporations and pass-through businesses
- The stimulative effect of a tax rate cut on c-corporations is smaller when tax depreciation policy is accelerated
- This effect is further diluted by the presence of pass-through entities
- The Tax Cuts and Jobs Act (TCJA-17) in 2017 resulted in small stimulus, large payouts to shareholders, and a dramatic loss of corporate tax revenues due to accelerated tax depreciation policy and a large share of pass-through activity
- Kennedy's corporate tax cuts in the early 1960s predicted sizable stimulus, consistent with historical data
- Model-implied corporate tax multipliers for Trump's TCJA-17 and Kennedy's tax cuts are +0.6 and +2.5 respectively
- The framework can be easily replicated and extended to other countries with similar elements in their corporate tax codes
- Potential extensions suggested include considering sectoral heterogeneity and analyzing corporate debt and interest payment deduction
- Importance of considering factors such as tax depreciation policy and distinctions between different types of businesses when evaluating the effects of corporate tax reforms

## Summary

This paper extends a standard general equilibrium framework to analyze the macroeconomic effects of corporate tax reforms, focusing on two key elements: tax depreciation policy and the distinction between c-corporations and pass-through businesses. The model shows that the stimulative effect of a tax rate cut on c-corporations is smaller when tax depreciation policy is accelerated, and this effect is further diluted by the presence of pass-through entities. The study predicts that due to a highly accelerated tax depreciation policy and a large share of pass-through activity in 2017, the Tax Cuts and Jobs Act (TCJA-17) would result in small stimulus, large payouts to shareholders, and a dramatic loss of corporate tax revenues. These predictions are supported by evidence from professional forecasters and sectoral tax returns. In contrast, the model predicts sizable stimulus in response to Kennedy's corporate tax cuts in the early 1960s, which is also consistent with historical data. The model-implied corporate tax multipliers for Trump's TCJA-17 and Kennedy's tax cuts are +0.6 and +2.5 respectively. The paper emphasizes that while the analysis focuses on the US context, the framework can be easily replicated and extended to other countries with similar elements in their corporate tax codes. The authors suggest potential extensions to consider sectoral heterogeneity and analyze corporate debt and interest payment deduction. Overall, this research provides insights into how different elements of corporate tax policies can impact macroeconomic outcomes, highlighting the importance of considering factors such as tax depreciation policy and distinctions between different types of businesses when evaluating the effects of corporate tax reforms.