Tax reform looks low risk for economy
This paper looks at some possible effects
of the new law on the economy by studying the
effects of the tax changes on a small model of
the economy. Numerous simulations of this
model indicate that any negative effect on output
will be quite small. A number of scenarios
are run, and show that modest positive adjustments
in the economy could more than offset
the losses in our "worst case scenario," which
itself turns out not to be that bad. These offsetting
adjustments could include an increase
in the supply of labor due to the lowering of
individual tax rates, an increase in the efficiency
in investments by businesses, and a reduction
in corporate dividends.