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Dynamic scoring: A back-of-the-envelope guide

  • Mankiw, N. Gregory
  • Weinzierl, Matthew

This paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth. The model yields simple expressions for the steady-state feedback effect of a tax cut. The feedback is surprisingly large: for standard parameter values, half of a capital tax cut is self-financing. The paper considers various generalizations of the basic model, including elastic labor supply, departures from infinite horizons, and non-neoclassical production settings. It also examines how the steady-state results are modified when one considers the transition path to the steady state.

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

Volume (Year): 90 (2006)
Issue (Month): 8-9 (September)
Pages: 1415-1433

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:8-9:p:1415-1433
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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