I've done a couple of blog posts on the "leprechaun economics" of current GOP growth promises -- the claim that cutting corporate tax rates will lead to lots of growth by pulling in foreign capital, a la Ireland 1/ krugman.blogs.nytimes.com/2017/11/09/lep…
So here's a summary of what I conclude, which is that at best these tax cuts would do approximately nothing for U.S. national income, and more likely would reduce it. The key point is the GDP -- the value of production in the US -- is the wrong measure 2/
The Irish know this very well: they have lots of GDP from foreign multinationals, but huge outflows of profits to foreigners, so that the income accruing to the Irish themselves is much less 3/ krugman.blogs.nytimes.com/2017/11/08/lep…
Now suppose cutting corporate taxes brings in more capital. This raises GDP. But foreigners get a return on their capital, which is roughly equal to the gain in GDP if you believe in marginal productivity theory of income 4/
So where's the net gain to the US? It comes from the tax wedge: foreign capital pays part of its return to the U.S. Treasury. That's it for small capital inflows. And that means that only 20-35% of the gain in GDP (effective v nominal tax rate) is net gain to US income 5/
This is very unlikely to be more than a fraction of a percent of GDP, even after a decade. But wait, there's more: unless the tax cut is fully passed through to wages -- which won't happen -- foreign capital already in the US gets a big windfall 6/ taxpolicycenter.org/taxvox/foreign…
Playing around with the numbers, I find it easy to come up with scenarios in which this windfall is bigger than the taxes collected on new capital inflows. In that case the corporate tax cut actually *reduces* US national income 7/
And this doesn't even take account of the impact on deficits. Deficit spending can boost growth if the economy is well below full employment, or if it's used to finance productive public investment. But this tax cut would just cause crowding out 8/
All in all, then, big corporate tax cuts are likely to be anti-growth, not pro-growth *even using the arguments Trump and allies are making for those cuts*. We're not even talking about fairness here, just growth arithmetic done right 9/
