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Are Tax Cuts Really Expansionary?

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  • N. Gregory Mankiw
  • Lawrence H. Summers

Abstract

In this paper, we re-examine the standard analysis of the short-run effect of a personal tax cut. If consumer spending generates more money demand than other components of GNP, then tax cuts may, by increasing the demand for money, depress aggregate demand. We examine a variety of evidence and conclude that the necessary condition for contractionary tax cuts is probably satisfied for the U.S. economy.

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File URL: http://www.nber.org/papers/w1443.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1443.

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Date of creation: Jan 1987
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Handle: RePEc:nbr:nberwo:1443

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  1. Plosser, Charles I. & Schwert*, G. William, 1978. "Money, income, and sunspots: Measuring economic relationships and the effects of differencing," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 637-660, November.
  2. Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-44, December.
  3. repec:nbr:nberre:0126 is not listed on IDEAS
  4. Fair, Ray C, 1979. "An Analysis of a Macro-Econometric Model with Rational Expectations in the Bond and Stock Markets," American Economic Review, American Economic Association, vol. 69(4), pages 539-52, September.
  5. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  6. Holmes, James M & Smyth, David J, 1972. "The Specification of the Demand for Money and the Tax Multiplier," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 179-85, Jan.-Feb..
  7. Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986. "Ricardian Consumers with Keynesian Propensities," American Economic Review, American Economic Association, vol. 76(4), pages 676-91, September.
  8. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
  9. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
  10. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
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Cited by:
  1. West, Kenneth D., 1987. "A standard monetary model and the variability of the deutschemark-dollar exchange rate," Journal of International Economics, Elsevier, vol. 23(1-2), pages 57-76, August.
  2. Lawrence B. Lindsey, 1985. "Estimating the Revenue Maximizing Top Personal Tax Rate," NBER Working Papers 1761, National Bureau of Economic Research, Inc.
  3. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.

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