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Economic Perspectives, Vol. 11, 2nd, No. 3, May 1987
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.
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