System Structure of Agent-Based Model Responsible for Reproducing Business Cycles and the Effect of Tax Reduction on GDP
sumers , some consumers ’ money to be transferred to the government by taxation is consumed in the market due to the income tax reduction , thus leading to an increase in GDP with a decreased tax rate .
In the case of corporate tax , the inefficiency of government expenditure is also a necessary factor to reproduce the negative correlation between the corporate tax rate and GDP ( i . e ., positive effect of corporate tax reduction on GDP ) as shown in Figure 7 ( b ). However , some additional factors are required in the model to reproduce the positive effect of corporate tax reduction .
These include executive compensation , the use of internal funds for investment , and an increase in the upper limit of the number of loans ( i . e ., mitigation of credit rationing ). Figures 8 ( a ) and 8 ( b ) show the effect of executive compensation , the use of internal funds for investment , and bank financing on the relationship between corporate tax rate and GDP . Here , the upper limit of the number of loans is assumed to be 3 and the inefficiency of government expenditure is assumed to be 0.3 . Figure 8 shows that the negative relationship between corporate tax and GDP occurs only when executive compensation , the use of internal funds for investment , and the inefficiency of government expenditures are included in the model . An increase in the upper limit of the number of loans ( i . e ., mitigation of credit rationing ) is another necessary condition to reproduce the positive effect of tax reduction .
Figure 9 shows the influence of the upper limit of the number of loans on the relationships between corporate tax rate and GDP ( see Figure 9 ( a )) and the number of investments ( see Figure 9 ( b )) when both executive compensation and financing using internal funds are included in the model and the inefficiency of government expenditure is assumed to be 0.3 . Note that negative relationships between the corporate tax rate and GDP and the number of investments are only reproduced when the upper limit of the number of loans is 3 ( i . e ., mitigation of credit rationing is applied ).
Figure 8 . Influence of the inclusion of internal funds rule
number of loans is 3 .
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