Question

What are the economic benefits and costs of other countries implementing lower corporate tax rates, like Trump has recently done in the US? Show equations and economic theory to support your answer.

Answer 1

BENEFITS

The increased investment and economic growth spurred by lower corporate tax rates would lead to higher wages for workers and encourage employers to hire more workers, which would translate into more jobs.

The lower rate will attract capital to the U.S. corporate sector. American corporations will invest more in the U.S. because foreign countries will no longer offer lower tax rates, and repatriate profits earned by their foreign subsidiaries rather than leaving them abroad. They will also bring back some of the previously earned foreign profits that have been left outside the U.S. Foreign companies will expand their investments in the U.S. – or even shift their operations here– to take advantage of the lower tax rate. And within the U.S., capital will flow from agriculture and housing to higher-productivity uses in the corporate sector.

COSTS

we know Y= C+I+G+NX where, C= C bar + cYd where Yd will reduce when taxes are lowered. Also, lower taxes might reduce the govenment revenue.

THUS, we see that benefits outweighs the cost .