Category: Publications
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Assessing the Effects of Keeping Top Individual Income Tax Rates Low
The TCJA cut income taxes on top earners from 39.6% to 37%, among other changes. This brief assesses the macroeconomic impact of making the TCJA tax cut on top earners permanent compared to letting it expire and compared to raising it. IMPA’s assessment shows that permanent extension of the TCJA tax cut on top earners…
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Technical Note on the Economics of Taxing Capital Gains
This technical note describes how, under the current system of capital gains taxation, capital gain income is taxed at lower rates than labor income—and only upon realization of the gains and with a step-up in basis at death. This system distorts the economy and contributes to inequality. Lower tax rates on capital gains income do…
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Taxing Excessive Profits: Designing a Pro-Competition Corporate Tax System
This brief, authored by Ira Regmi and Niko Lusiani, lays the groundwork for a pro-competition corporate income tax system, emphasizing the economic rationale for taxing the excess profits of large U.S. businesses. A preliminary draft was shared to kick off the IMPA-RI co-organized expert convening at American University in October 2024
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Equity Prices, Market Power, and Optimal Corporate Tax Policy
This academic paper studies the optimal design of corporate tax policy in a textbook life-cycle model featuring two key deviations: (i) firms are imperfectly competitive and (ii) households save by purchasing equity shares in a stock market. In this simple environment, the financial wealth of savers is equal to the sum of the productive capital…
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Evaluating the Harris and Trump Corporate Tax Proposals
Vice President Kamala Harris proposes raising the corporate tax rate to 28% from its current 21%, while former President Donald Trump proposes lowering it to 15%. The IMPA model projects that the Harris proposal will modestly increase GDP and government revenue. In contrast, it projects that the Trump proposal will slightly contract GDP and government…
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Technical Note on Estimating the Overall Effect of Corporate Tax Reforms
This technical note first describes key differences between estimating the impact of a change in tax policy at the firm (microeconomic) level and at the overall (macroeconomic) level. It then explains how macroeconomic models are used to infer the overall effects of policy reforms and how alternative assumptions – such as the presence of market…
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Assessing the Effects of a Dividend and Capital Gains Tax Increase
This brief provides a new analysis of the macroeconomic effects of raising taxes on dividend income and capital gains. Increasing dividend income and capital gains taxes from 20% to 39.6% for households earning over $1 million would raise government revenue by about 5% and GDP by about 1% in the long term. The proposed tax increase…
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Capacity Utilization, Markup Cyclicality, and Inflation Dynamics
This academic paper studies the relationship between firms’ decisions about capacity, its utilization, and inflation. To do this, we introduce endogenous capacity utilization into a New Keynesian (NK) model. In our model, firms set capacity under demand uncertainty, utilizing both an effort margin and capacity expansion to meet demand. This mechanism implies that firm-level productivity and desired…
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Repealing the Clean Energy Credits: A Macroeconomic Assessment of the GOP Proposal
This brief explains a new analysis of a Republican proposal to repeal the clean energy credits from the 2022 Inflation Reduction Act. The analysis finds that withdrawal of the clean energy credits would reduce GDP by approximately 2% in the long run from its anticipated level under current policy, while depressing employment and wages by…
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Capital Account Liberalization, Structural Change, and Female Employment
This academic paper studies the effects of capital account liberalization on female employment and its implications for structural change in developing countries. Using a large industry-level panel of 88 low and low-middle-income countries, we provide evidence that episodes of financial liberalization lead to large declines in female employment in tradable sectors. These declines are driven…