Working Paper

The Macroeconomic Effects of the Tax Cuts and Jobs Act


Abstract: This paper studies the macroeconomic effects of seven key TCJA provisions, including the tax cuts for individuals and businesses, the bonus depreciation of equipment, the amortization of R&D expenses, and the limits on interest deductibility. I use a dynamic general equilibrium model with interest deductibility and accelerated depreciation. I find that, initially, the tax reform had a small positive impact on output and investment. In the medium term, however, the effect on output will diminish, and the effect on investment will turn negative. The tax reform will depress investment in R&D. Government debt will surge.

Keywords: tax multiplier; financial frictions.; interest deductibility; Tax reform; accelerated depreciation;

JEL Classification: E32; E62; H24; H25; H30;

https://doi.org/10.26509/frbc-wp-1928

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2019-12-13

Number: 192800