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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.

Suggested Citation

  • N. Gregory Mankiw & Lawrence H. Summers, 1984. "Are Tax Cuts Really Expansionary?," NBER Working Papers 1443, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1443
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    References listed on IDEAS

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    Cited by:

    1. James M. Poterba & Julio J. Rotemberg, 1986. "Money in the Utility Function: An Empirical Implementation," Working papers 408, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Lawrence B. Lindsey, 1985. "Estimating the Revenue Maximizing Top Personal Tax Rate," NBER Working Papers 1761, National Bureau of Economic Research, Inc.
    3. Ibrar Hussain & Jawad Hussain & Arshad Ali & Shabir Ahmad, 2021. "A Dynamic Analysis of the Impact of Fiscal Adjustment on Economic Growth: Evidence From Pakistan," SAGE Open, , vol. 11(2), pages 21582440211, June.
    4. 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.
    5. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.
    6. Lawrence H. Summers, 1985. "Issues in National Savings Policy," NBER Working Papers 1710, National Bureau of Economic Research, Inc.
    7. Paweł Borys & Piotr Ciżkowicz & Andrzej Rzońca, 2014. "Panel Data Evidence on the Effects of Fiscal Policy Shocks in the EU New Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 189-224, June.
    8. Lawrence B. Lindsey, 1986. "Individual Taxpayer Response to Tax Cuts 1982-1984 with Implications forthe Revenue Maximizing Tax Rate," NBER Working Papers 2069, National Bureau of Economic Research, Inc.

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