Macroeconomic Effects of a Temporary Reduction in the
Tax Rate on Repatriation of Foreign Subsidiary Earnings

American Council for Capital Formation
October 21, 2003

(PDF)

For nearly a quarterly of a century, the ACCF Center for Policy Research**, the economic research and education affiliate of the American Council for Capital Formation, has sponsored path-breaking research on tax policies to encourage saving, investment, and economic growth. As federal policymakers crafted legislation to replace the Extraterritorial Income Exclusion Act, the Center sponsored an analysis of the macroeconomic impact of a temporary one-year reduction in the tax rate on repatriated earnings of U.S. foreign subsidiaries by Dr. Allen Sinai, President and Chief Global Economist, Decision Economics, Inc. The purpose of this Special Report is to further the debate on broad international tax reform in order to make U.S. businesses more competitive internationally.

The Sinai-Boston (SB) Econometric Model of the U.S. is a largescale quarterly econometric model that includes considerable detail on aggregate demand, financial markets, sectoral flows of funds and balance sheets, interactions of the financial system with the real economy, and detailed trade and international financial flows. The advantage of a general equilibrium macroeconomic model instead of a partial equilibrium model for analyzing the impact of a change in the tax code is that a general model measures how the economy will react after all interactions of the economy, financial system, inflation, sectoral behavior, the labor market, productivity and potential output are allowed to adjust to the new tax rates.

Read the Full Report (PDF)