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

Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, Laurence J. Kotlikoff

NBER Working Paper No. 19757
Issued in December 2013, Revised in April 2014
NBER Program(s):Corporate Finance

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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Document Object Identifier (DOI): 10.3386/w19757

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