SINGAPORE (June 10): For some time, the four horsemen of US macroeconomic policymaking have been taxation, regulation, trade and infrastructure. Having studied the first in detail, I have found tax cuts to be a positive contributor to economic growth. Though I have considered the second area in less detail, the evidence suggests that regulation is, at best, only a minor contributor to growth. The third area is very important, which is why today’s trade tensions are so worrying. The fourth area exists only in rhetoric: An infrastructure programme is currently not a part of the macroeconomic policy repertoire.

In the first area, I estimate that the 2017 tax legislation added 1.1% per year to the US’ GDP growth rate for 2018 to 2019. Of that, 0.9 percentage point reflected the reduced tax rate on individuals, whereas 0.2 percentage point was derived from the rate cuts and improved expensing provisions for businesses. While the growth-enhancing effect of the tax cuts for individuals is not expected to continue beyond 2019, the impact of the corporate tax reform is likely to persist for some time to come.

As for the second horseman, there is some indication that the expansion of federal regulations has begun to taper off, after undergoing a long period of growth. As of 2017, RegData, which tracks the number of words relating to constraints on economic activity in the Federal Register, shows that new regulations have plateaued. The regulatory burden on business and economic activity is no longer rising, but it is not diminishing, either.

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