The Macroeconomic Effects of Corporate Tax Reforms

Using aggregate, sectoral, and firm-level data, this paper examines the effects of two major U.S. corporate tax cuts. The Tax Cuts and Jobs Act (TCJA-17) led to large shareholder payouts but modest aggregate stimulus, while Kennedy's 1960s tax cuts stimulated output and investment with minimal payout impact. To explain this divergence, I incorporate tax depreciation policy and a pass-through business sector into a neoclassical growth model. The model suggests that accelerated depreciation and a large pass-through share dampen stimulus from corporate tax rate reductions, and that Kennedy's cuts boosted output four times more per dollar of lost revenue than the TCJA-17.