A General Equilibrium Evaluation of Corporate Income Tax Reform

Abstract

This study provides new insights into the effects of the corporate income tax by introducing a general equilibrium model in which households choose portfolios composed of housing and non‐housing assets, industries make investment decisions based on Hall‐Jorgenson cost‐of‐capital formulas, and the corporate‐noncorporate mix in each industry is endogenous. The annual efficiency cost of an unintegrated tax on corporations is found to be about 3 1/2 percent of expanded national income. This new estimate is intended to spur further investigation of individuals' demand for owner‐occupied housing and firms' decisions about incorporation.