{
  "title": "Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis",
  "publication": "IMF Working Papers, February 15, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524",
  "overlayPath": "/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/index.md",
  "summary": "This paper develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts. First, the analysis extends the Ricardian equivalence result to an environment with production and establishes that a temporary tax cut financed by a future tax-increase has no real effect i",
  "sections": [
    {
      "heading": "Summary of approach",
      "content": "- Develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts.\n- Extends the Ricardian equivalence result to an environment with production.\n- Analyzes cases with perfect capital markets and with financing frictions that raise the cost of investment.\n- Investigates the role of distortionary taxes and expectations of future tax rates on investment incentives."
    },
    {
      "heading": "Main findings",
      "content": "- Ricardian-equivalence extension:\n  - A temporary tax cut financed by a future tax-increase has no real effect if the tax is lump-sum and capital markets are perfect.\n- Financing-frictions case:\n  - In the presence of financing frictions which raise the cost of investment, the policy temporarily relaxes the financing constraint thereby reducing the marginal cost of investment.\n  - This direct effect implies positive marginal propensities to invest out of tax cuts.\n- Distortionary-tax case:\n  - When the tax is distortionary, the expectation of high future tax rates reduces the expected marginal return on investment, mitigating the direct stimulative effects."
    },
    {
      "heading": "Policy implications",
      "content": "- Temporary business tax cuts are ineffective in altering real outcomes under lump-sum taxation and perfect capital markets (Ricardian equivalence holds).\n- Temporary tax cuts can stimulate investment when financing frictions are present by lowering the effective marginal cost of investment through a temporary relaxation of financing constraints.\n- The presence of distortionary taxation and expectations of future high tax rates can offset or blunt the stimulative investment effects of temporary tax cuts."
    },
    {
      "heading": "Publication and metadata",
      "content": "- Author: William Gbohoui\n- Publication date: February 15, 2019\n- Series: Working Paper No. 2019/029\n- Issue: 029\n- Volume: 2019\n- Pages: 39\n- DOI: https://doi.org/10.5089/9781484393895.001\n- Stock No: WPIEA2019029\n- ISBN: 9781484393895\n- ISSN: 1018-5941\n- Citation format shown on page: William Gbohoui. \"Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis\", IMF Working Papers 2019, 029 (2019), accessed 9/9/2026, https://doi.org/10.5089/9781484393895.001\n\nIMF Working Papers: Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis — William Gbohoui (February 15, 2019).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/bundle-manifest.json)",
    "Authors: William Gbohoui",
    "Published: February 15, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484393895.001",
    "Develops a dynamic general equilibrium model to assess the effects of temporary business tax cuts.",
    "Extends the Ricardian equivalence result to an environment with production.",
    "Analyzes cases with perfect capital markets and with financing frictions that raise the cost of investment.",
    "Investigates the role of distortionary taxes and expectations of future tax rates on investment incentives.",
    "Ricardian-equivalence extension:",
    "Financing-frictions case:",
    "Distortionary-tax case:",
    "Temporary business tax cuts are ineffective in altering real outcomes under lump-sum taxation and perfect capital markets (Ricardian equivalence holds).",
    "Temporary tax cuts can stimulate investment when financing frictions are present by lowering the effective marginal cost of investment through a temporary relaxation of financing constraints.",
    "The presence of distortionary taxation and expectations of future high tax rates can offset or blunt the stimulative investment effects of temporary tax cuts.",
    "Author: William Gbohoui",
    "Publication date: February 15, 2019",
    "Series: Working Paper No. 2019/029",
    "Issue: 029",
    "Volume: 2019",
    "Pages: 39",
    "DOI: https://doi.org/10.5089/9781484393895.001",
    "Stock No: WPIEA2019029",
    "ISBN: 9781484393895",
    "ISSN: 1018-5941",
    "Citation format shown on page: William Gbohoui. \"Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis\", IMF Working Papers 2019, 029 (2019), accessed 9/9/2026, https://doi.org/10.5089/9781484393895.001",
    "**Working Paper**"
  ],
  "related": [
    {
      "title": "Working Paper",
      "role": "paper",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019029.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2019/wpiea2019029.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2019/wpiea2019029.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/index.md",
    "json": "/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/index.json",
    "bundleManifest": "/en/publications/wp/issues/2019/02/15/do-temporary-business-tax-cuts-matter-a-general-equilibrium-analysis-46524/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-18T14:48:04.049Z"
}