Fiscal policy analysis in heterogeneous-agent models typically involves the use of smooth tax functions to approximate present tax law and proposed reforms. We argue that the tax detail omitted under this conventional approach has macroeconomic implications relevant for policy analysis. In this paper, we develop an alternative approach by embedding an internal tax calculator into a large-scale overlapping generations model that explicitly models key provisions in the Internal Revenue Code applied to labor income. While both approaches generate similar policy-induced patterns of economic activity, we nd that the similarities mask dierences in key economic aggregates and welfare due to variation in the underlying distribution of household labor supply responses. Absent sucient tax detail, analysis of specic policy changes particularly those involving large, discrete eects on a relatively small group of households using heterogeneous-agent models can be unreliable.JEL Codes: C63, E62, H30

The macroeconomic effects of tax reform are a subject of significant discussion and controversy.

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