Question

Find and summarize at least one academically acceptable reference that discusses the macro-economic impacts of the currently proposed tax reform package, (i.e., how much total consumption will change, how much new business investment will occur, how much GDP will change and/or grow, how much the deficit might change, and, how much inflation will change.)

Answer 1

Considering the current tax reform to be the Fiscal tax reform under Trump administration but are my hypothesis.

The currently formulized Fiscal tax reform where the corporate tax rates were reduced to 21 percent on december 2017 would certainly influence whole host of macro economic measures. For example with corporate America having more money at their bottom line, that would promote more investments towards expansion, labour welfare, strategic merger & aquisitions, etc. These events will certainly enhance the growth potential of US and World.

But these would also impact on the inflation rate as well, more liquidity in the economy would bring up the WPI (Wholesale Price Index) and CPI(Consumer Price Index) and resulting FED to intervene and reduce the liquidity by applying contractionary monetary policy.

Althrough on the other side, increase in investments would lead to higher growth, resulting in enhancement of GDP figures.

While the tax cut more or less have a positive impact of US and World Economies, i feel US and Global deficit will not be influenced by the tax cut to a huge extend since deficit is majorly resolved by tight monetary policies and while US would be driving on the higher growth/higher yield trend, FED will be continuously challenged to apply contractionary monetary policy to keep a check on inflation.