Did the Tax Cuts and Jobs Act Create Jobs and Stimulate Growth?

Kumar, Anil

doi:10.24149/wp2001r2

Working Paper Revision

Did the Tax Cuts and Jobs Act Create Jobs and Stimulate Growth?

Abstract: The Tax Cuts and Jobs Act (TCJA) of 2017 is the most extensive overhaul of the U.S. income tax code since the Tax Reform Act of 1986. Existing estimates of TCJA’s economic impact are based on economic projections using pre-TCJA estimates of tax effects. I exploit plausibly exogenous state-level variation in tax changes from TCJA and find that an income tax cut equaling 1 percent of GDP led to a 1.2-percentage-point faster job growth and nearly 1.5 percentage points higher GDP growth over two years following the law change. While the estimates are imprecise, the overall pattern suggests that the TCJA stimulated economic growth. The estimates imply a two-year tax cut multiplier of 1.5 and a cost per job of $105,000. The estimated growth effect was driven by a nearly 1.3-percentage-point increase in the labor force participation rate.

Keywords: Taxes and Economic Growth; Tax Cuts and Jobs Act;

JEL Classification: E62; H30;

https://doi.org/10.24149/wp2001r2