Abstract
The Tax Cuts and Jobs Act (TCJA) significantly altered how business income is taxed in the US. This paper provides a quantitative assessment of the distributional and macroeconomic effects of the TCJA, both in the short run and in the long run, using a life-cycle model with occupational choice and accumulation of entrepreneurial human capital. When salient provisions of the TCJA are implemented, the economy experiences an increase of 0.20 and 0.5 percentage points in annual GDP and capital stock growth for the first decade 2018-2027, respectively. However, economic inequality increases across and within occupations under the TCJA. The provisions affect the incentives for individuals to save, making the occupational choice extensive margin critically important in analyzing the potential impacts of the new tax reform.
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