Simulating the Elimination of the U.S. Corporate Income Tax

Special Publications | Taxes


Monday, January 06, 2014
by Laurence J. Kotlikoff, Ashwin Kambhampati, Sabine Jokisch, Hans Fehr

We simulate corporate tax reform in a single good, five-region (U.S., Europe, Japan, China, India) model, featuring skilled and unskilled labor, detailed region-specific demographics and fiscal policies. Eliminating the model’s U.S. corporate income tax produces rapid and dramatic increases in the model’s level of U.S. investment, output, and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating tax loop-holes.

 

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