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Dynamic Scoring: Alternative Financing Schemes

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Author Info
Eric M. Leeper () (Indiana University)
Shu-Chun Susan Yang () (Joint Committee on Taxation)

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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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File URL: http://www.iub.edu/~caepr/RePEc/PDF/2006/CAEPR2006-022.pdf
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Publisher Info
Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2006-022.

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Length: 26 pages
Date of creation: Dec 2006
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Handle: RePEc:inu:caeprp:2006022

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Keywords: Revenue feedback capital tax labor tax debt management

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Find related papers by JEL classification:
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
H6 - Public Economics - - National Budget, Deficit, and Debt

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alan J. Auerbach, 2005. "Dynamic Scoring: An Introduction to the Issues," American Economic Review, American Economic Association, vol. 95(2), pages 421-425, May. [Downloadable!] (restricted)
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    Other versions:
  3. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June. [Downloadable!] (restricted)
  4. Susan Yang, Shu-Chun, 2005. "Quantifying tax effects under policy foresight," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1557-1568, November. [Downloadable!] (restricted)
  5. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June. [Downloadable!] (restricted)
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  6. David B. Gordon & Eric M. Leeper, 2005. "Are Countercyclical Fiscal Policies Counterproductive?," NBER Working Papers 11869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Trabandt, Mathias & Uhlig, Harald, 2006. "How Far Are We From the Slippery Slope? The Laffer Curve Revisited," CEPR Discussion Papers 5657, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 709-746, May. [Downloadable!] (restricted)
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  9. Ireland, Peter N., 1994. "Supply-side economics and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 559-571, June. [Downloadable!] (restricted)
  10. Troy Davig, 2005. "Periodically expanding discounted debt: a threat to fiscal policy sustainability?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 829-840. [Downloadable!]
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  13. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August. [Downloadable!] (restricted)
  14. Ludvigson, Sydney, 1996. "The macroeconomic effects of government debt in a stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 25-45, August. [Downloadable!] (restricted)
  15. Novales, Alfonso & Ruiz, Jesus, 2002. "Dynamic Laffer curves," Journal of Economic Dynamics and Control, Elsevier, vol. 27(2), pages 181-206, December. [Downloadable!] (restricted)
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  16. Bruce, Neil & Turnovsky, Stephen J, 1999. "Budget Balance, Welfare, and the Growth Rate: "Dynamic Scoring" of the Long-Run Government Budget," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 162-86, May.
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  18. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ioana Moldovan, 2008. "Countercyclical Fiscal Policy and Cyclical Factor Utilization," Working Papers 2008_15, Department of Economics, University of Glasgow. [Downloadable!]
  2. Karel Mertens & Morten O. Ravn, 2008. "The Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks: Theory and Empirical Evidence," Economics Working Papers ECO2008/05, European University Institute. [Downloadable!]
    Other versions:
  3. Mathias Trabandt & Harald Uhlig, 2006. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited," SFB 649 Discussion Papers SFB649DP2006-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
    Other versions:
  4. Alejandro Cuñat & Szabolcs Deák & Marco Maffezzoli, . "Tax Cuts in Open Economies," Working Papers 332, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  5. Ioana Moldovan, 2007. "Countercyclical Taxes in a Monopolistically Competitive Environment," Working Papers 2007_42, Department of Economics, University of Glasgow. [Downloadable!]
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