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Although the Tax Cut and Jobs Act (TCJA) did not include any environmental tax provisions, numerous tax policy discussions in the United States have considered implementing a carbon tax, giving rise to concerns about such a tax‘s potential negative effects on economic growth and the distribution of income in the US economy. This chapter examines the macroeconomic and distributional effects of implementing a representative carbon tax under several assumptions about recycling resulting tax revenues. It simulates these effects using the Diamond-Zodrow (DZ) dynamic overlapping generations computable general equilibrium (CGE) model. Earlier literature and our results confirm that: (i) the negative effects of a carbon tax are moderate on the level of future GDP and negligible on the rate of economic growth; and (ii) the regressive effects of a carbon tax can easily be offset with judicious use of the resulting revenues. Policies that use carbon tax revenues to finance uniform per-household rebates and to enact policies favorable to capital formation, such as elimination of both personal taxes on dividends and capital gains, and national debt, can have a highly progressive net impact.
This introduction summarizes the nine central chapters that make up this volume. Martin Feldstein examines the structural reasons for relatively high US growth rates, notes fiscal problems inhibiting future growth including in deficits in social insurance programs, and suggests reforms. Flávio Cunha examines how the development of human capital, especially at early ages, affects economic growth. George Borjas analyzes how increased immigration would affect economic growth in the United States. Glenn Hubbard explores the debate between “techno-optimists” and “techno-pessimists” on the growth effects of technological progress, while Timothy Bresnahan examines in detail the commercial applications of Artificial Intelligence Technologies (AITs). Robert Barro estimates the macroeconomic effects of the recently enacted Tax Cuts and Jobs Act, while John Diamond and George Zodrow examine the macroeconomic and distributional effects of a carbon tax. Ross Levine discusses the links between banking and economic prosperity, and Stephen Turnovsky examines the relationships among income, wealth inequality, and economic growth.
The chapters in this volume provide insightful and provocative discussion of many of the issues related to whether the United States is likely to continue on the robust growth path of earlier years or whether economic growth is likely to decelerate or even enter an extended period of “secular stagnation.” In this concluding chapter, the editors of the volume tie together some of the threads that appear in the various chapters, extend the analyses in several directions, and discuss some policy implications. The discussion is organized around three themes: (i) technology and productivity growth; (ii) labor markets and economic growth, including the importance of human capital accumulation and the role of immigration; and (iii) fiscal policy, including both expenditure and tax reform.
Although economic growth has historically been an engine of prosperity in the United States, recent trends have generated uncertainty regarding the prospects for sustaining such growth. Economists disagree about the relative importance of many factors affecting future growth, including rapid technological advances, immigration, the growth of the financial sector, problems with the educational system, increasing income inequality, an aging population, and large fiscal imbalances that have not been addressed by the political system. This collection of chapters, authored by many of today's leading economists, addresses the prospects for economic growth in the United States over the next few decades. During a time of great economic uncertainty, this book engages with both sides in the debate over economic growth, focusing on policy options that increase the prospects for vigorous economic growth in the future.