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Dynamic scoring: Alternative financing schemes

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  • Leeper, Eric M.
  • Yang, Shu-Chun Susan

Abstract

Neoclassical growth models predict that reductions in capital or labor tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can be contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 1-2 (February)
Pages: 159-182

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:1-2:p:159-182

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Web page: http://www.elsevier.com/locate/inca/505578

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