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The Dynamic Economic Effects of a US Corporate Income Tax Rate Reduction

Author

Listed:
  • John W. Diamond

    (Baker Institute for Public Policy, Rice University)

  • George R. Zodrow

    (Baker Institute for Public Policy, Rice University)

  • Thomas S. Neubig

    (Quantitative Economics and Statistics, Ernst & Young, LLP)

  • Robert J. Carroll

    (Quantitative Economics and Statistics, Ernst & Young, LLP)

Abstract

This paper focuses on a reduction in the statutory corporate income tax rate. Of course, a reduction in the corporate tax rate would have to be financed by expansion of the corporate tax base, an increase in other taxes, a reduction in spending, and/or an increase in the deficit. The analysis considers three potential financing alternatives: elimination of a wide range of business tax expenditures, an increase in individual income taxes on labor income, and a decrease in government expenditures in the form of income transfers. Each package is designed to be revenue neutral in a dynamic sense, that is, taking into account the effects of the reform over time on saving, investment, labor supply, and other 3 macroeconomic variables. The dynamic analysis in the paper reflects simulations of the macroeconomic effects of reform using a modified version of a dynamic, overlapping generations, computable general equilibrium model developed by Diamond and Zodrow.

Suggested Citation

  • John W. Diamond & George R. Zodrow & Thomas S. Neubig & Robert J. Carroll, 2014. "The Dynamic Economic Effects of a US Corporate Income Tax Rate Reduction," Working Papers 1405, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1405
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    References listed on IDEAS

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    Cited by:

    1. Benjamin Carton & Emilio Fernández Corugedo & Mr. Benjamin L Hunt, 2017. "No Business Taxation Without Model Representation: Adding Corporate Income and Cash Flow Taxes to GIMF," IMF Working Papers 2017/259, International Monetary Fund.

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