Abstract
The Tax Cuts and Jobs Act constitutes the largest change to the US tax system since the 1980s and thoroughly alters the way in which multinational companies are taxed. Current assessments on the reform’s international impact vary widely. This article sheds light on the tax reform’s expected effects on other countries. We first use representative German business survey data to analyze the impact of the reform on German firms. Many firms with substantial US revenues or capacities in the USA intend to expand US investment in response to the reform, in particular large firms and manufacturing companies. The effects on investment in Germany are ambiguous: While some firms substitute between investment locations, others expand in both countries. We subsequently extend our analysis to a global level using worldwide survey data. The results suggest a negative impact on tax revenues and investment in countries with close economic ties to the USA.
Highlights
On December 22, 2017, US President Donald Trump signed into law the Tax Cuts and Jobs Act
When deciding whether and how to design a policy response, the international implications of the TCJA are of utmost importance to policy makers
While this paper mainly focuses on the international implications of the corporate income tax provisions, our survey data reflects views about the impact of the entire reform package, including the significant personal income tax cuts
Summary
On December 22, 2017, US President Donald Trump signed into law the Tax Cuts and Jobs Act. When deciding whether and how to design a policy response, the international implications of the TCJA are of utmost importance to policy makers Against this background, this paper gathers survey evidence to shed light on the reform’s potential international effects on investment, trade and tax revenues. As the TCJA’s economic effects are largely contingent on firm responses to the reform, this paper mainly relies on representative survey evidence from German firm surveys. As Germany is among the world’s most export intensive economies (Statista 2020) and among the largest providers of US inbound FDI (Jackson 2017), information on German firm responses is instructive for assessing the tax reform’s international effects. Our global survey results suggest a negative impact on tax revenues and investment in countries with close economic ties to the USA.. This paper is partially based on Krolage and Wohlrabe (2018), Rathje and Wohlrabe (2019) and Boumans and Krolage (2018)
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