• DOI:10.2139/ssrn.4023666
• Corpus ID: 243759089

The Macroeconomic Effects of Corporate Tax Reforms

@article{Furno2022TheME,
  title={The Macroeconomic Effects of Corporate Tax Reforms},
  author={Francesco Furno},
  journal={SSRN Electronic Journal},
  year={2022}
}

• F. Furno
• Published 24 November 2021
• Economics
• SSRN Electronic Journal

This paper extends a standard general equilibrium framework with a corporate tax code featuring two key elements: tax depreciation policy and the distinction between c-corporations and pass-through businesses. In the model, the stimulative effect of a tax rate cut on c-corporations is smaller when tax depreciation policy is accelerated, and is further diluted in the aggregate by the presence of pass-through entities. Because of a highly accelerated tax depreciation policy and a large share of pass-through activity in 2017, the theory predicts small stimulus, large payouts to shareholders, and a dramatic loss of corporate tax revenues following the Tax Cuts and Jobs Act (TCJA-17). At the same time, because of less accelerated tax depreciation and a lower pass-through share in the early 1960s, the theory predicts sizable stimulus and a small increase in payouts in response to the Kennedy’s corporate tax cuts. The model-implied corporate tax multiplier for the Kennedy’s tax cuts is four times higher than for the TCJA-17. These predictions are consistent with novel micro- and macro-level evidence from professional forecasters and publicly available tax returns. The paper also clarifies how these results relate to the capital taxation literature in macroeconomics, and how alternative ways to model corporate taxes fail to rationalize the proposed empirical evidence.