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Tax Projections and the Budget: Lessons from the 1980's

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  • Auerbach, Alan J

Abstract

Some economists have argued that the disincentive effects of marginal tax rate increases in the 1980s caused revenue to rise by less than had been anticipated. To evaluate the hypothesis, this paper considers OMB revenue forecasts and forecast errors for the period 1982-93. If the revenue gains from tax increases, and the revenue losses from tax cuts, were overstated because of inadequate allowance for behavioral responses, then the forecast errors should be negatively related to the initial revenue estimates of the impact of policy changes. For excise taxes and corporate income taxes, the results suggest that the systematic overprediction of revenues during the period can be explained in part by an underestimate of behavioral responses to taxation.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 85 (1995)
Issue (Month): 2 (May)
Pages: 165-69

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Handle: RePEc:aea:aecrev:v:85:y:1995:i:2:p:165-69

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  1. Daniel Feenberg & James Poterba, 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," NBER Working Papers 4229, National Bureau of Economic Research, Inc.
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Cited by:
  1. Feldstein, Martin, 1997. "How Big Should Government Be?," National Tax Journal, National Tax Association, vol. 50(2), pages 197-213, June.
  2. Victor Duarte Lledo & Marcos Poplawski-Ribeiro, 2011. "Fiscal Policy Implementation in Sub-Saharan Africa," IMF Working Papers 11/172, International Monetary Fund.
  3. António Afonso & Rui Carvalho, 2014. "Revenue Forecast Errors in the European Union," Working Papers Department of Economics 2014/02, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Ley, Eduardo & Misch, Florian, 2013. "Real-time macro monitoring and fiscal policy," Policy Research Working Paper Series 6303, The World Bank.

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