The economic effects of the fair tax: analysis of results of a dynamic CGE model of the US economy

By replacing the current income tax with a national sales tax, the FairTax proposal would end the double taxation of saving inherent in the existing tax code and, by doing so, raise output, employment, investment and capital stock relative to the benchmark economy. While these positive effects would be felt almost immediately, the FairTax is very much an investment in the future. Its full benefits would be realized only after the economy achieved a new “steady state,” some 20–25 years into implementation. Only by that point, will the effects on growth have been fully absorbed into the economy and the wellbeing of most households across most income groups improved. The policy choice, then, is between the status quo, and a new policy that would inflict some short-run pain as the price of a permanently expanded economy

Simulating corporate income tax reform proposals with a dynamic CGE model

Opinion leaders and policy makers in the United States have turned their focus to the corporate income tax, which now has the highest statutory rate in the developed world. Using a dynamic computable general equilibrium model (the “NCPA-DCGE Model”), we simulate alternative policies for reducing the U.S. corporate income tax. We find that reductions in the corporate income tax rate result in significant positive impacts on output, investment, capital formation, employment, and household well-being (for almost all deciles). All of the hypothesized reforms also result in a more-streamlined public sector. These results are plausible insofar as the DCGE model from which they are obtained is parameterized by plausible elasticity assumptions, and incorporates the adjustments in prices, output, employment and investment that result from changes in tax policy

Fiscal policy, growth and income distribution in the UK

Income and income inequality increased substantially in the UK during the industrial revolution. Income inequality was the highest around 1880. This triggered enactments of more egalitarian tax and transfer system, which halved income inequality by the 1960s. Inequality has risen again with fiscal system reforms in the last five decades. By analysing solutions of a dynamic computable general equilibrium (DCGE) model we show how policies could be designed for the optimal equitable paths of UK economy in the 21st century

A Case Study: Impact of International Liberalization on the Indian Economy

This paper, using the Solow growth model looks at the impact of liberalization on India’s economic growth. Additionally, using empirical data, it analyzes the patterns, processes, and characteristics of India’s economic growth. The Solow model explains the long run economic growth via the change in the Solow residuals. This paper defines the Solow residual as International trade. This paper will show that International trade and fewer regulations on exports and imports have ignited high economic growth in India. After the late 1980s, India saw an immense increase in international trade. Led by low tariff rates, India saw a hike in exports and imports and more importantly, foreign investments. With the backing of facts and figures, this paper will show that India has actually benefited in terms of economic growth from international trade. With liberalization, India has not only had success in the macro level, but it has also impacted people in terms of per capita income in the micro level. This paper is broken down into 4 sections. The first section gives an introduction to India and its relevance to the Solow model. The second section explores the theoretical framework of the Solow model. The third section uses the empirical data to examine the impact of liberalization on India (pre and post reformation). Finally, the fourth section is the analysis and conclusion section which compares India to other South Asian counties and gives policy recommendation

Fiscal Policy, Growth and Income Distribution in the UK

Income and income inequality increased substantially in the UK during the industrial revolution. Income inequality was the highest around 1880.This triggered enactments of more egalitarian tax and transfer system, which halved income inequality by the 1960s. Inequality has risen again with fiscal system reforms in the last five decades. By analysing solutions of a dynamic computable general equilibrium (DCGE) model we show how policies could be designed for the optimal equitable paths of UK economy in the 21st century

The distributional effects of the Trump and Clinton tax proposals

Hillary Clinton and Donald Trump, the Democratic and Republican candidates for President of the U.S. in 2016, proposed several changes in the federal tax code. Hillary Clinton would add a personal income tax surcharge of 4% on high annual incomes, limit the tax benefits of non-charitable deductions, set a minimum tax rate of 30% on taxpayers earning more than one million dollars a year, increase the tax rates on capital gains for taxpayers in the top tax bracket, and expand the base of the estate tax. Donald Trump would reduce the number of personal income tax rates, increase the standard personal deduction, cut all taxes on business income to no more than 15%, and abolish the inheritance tax. Using a tax calculator model, we estimate the static effects of these very different changes. Over a ten-year period, Clinton’s proposals would raise federal tax revenue by a total of $816 billion, an increase of 1.9$9.8 trillion. Clinton’s higher taxes would reduce incomes and revenue somewhat, while Trump’s tax cuts would potentially boost output substantially. Using an extended simulation model, we find that 86% of the incremental tax burden of Clinton’s tax increases would fall on those in the top tenth of the income distribution. Most other taxpayers would see only minor changes in their tax burdens, and the revenue and redistributive effects of her proposed changes are relatively modest. Meanwhile, 70% of Trump’s tax cuts would go to those in the top decile, and the effects are large, with gains of over $15,000 annually per person for this group, compared to gains of less than$500 per person for the poorest 40% of the population. On tax policy, the two candidates propose strikingly different policies

Tax plan debates in the US presidential election : a dynamic CGE analysis of growth and redistribution trade-offs

The two major candidates in the 2016 presidential election made sharply different proposals for reforming the Federal tax code. Donald Trump proposed cutting taxes to provide “tax relief for middle-class Americans”, and lowering corporation taxes to boost economic growth, while Hillary Clinton proposed modest increases in taxes on high-income Americans, with a view to increasing the “fairness” of the tax code. We have simulated the effects of these two proposals, using a two-tier modeling design, with a large dynamic computable general equilibrium model to address the macroeconomic magnitudes, linked to a micro-simulation tax calculator model to measure the distributional effects. The Trump proposals would boost economic growth, but sharpening the incentives to work and to save/invest would be regressive, with 70% of the benefits accruing to those in the top income decile. The budget deficit could only be maintained if spending were to be cut sharply; and if spending were reduced more modestly, the deficit would rise greatly. The Clinton proposals would have little net effect on 90% of households, which is at odds with her promise of tax relief for working people, but would reduce net income in the top decile by almost 2%. They would slow economic growth slightly. Although he was elected president, Donald Trump’s proposals are likely to be altered, mainly so that the budgetary effects are much smaller, before being presented to Congress. But the rationale, shape, and tone of the proposals will likely remain the same