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Budget Balance, Welfare, and the Growth Rate: "Dynamic Scoring" of the Long-Run Government Budget

  • Bruce, Neil
  • Turnovsky, Stephen J

This paper determines conditions under which a reduction in the role of government, either through a tax cut alone, or together with accompanying expenditure cuts, will improve long-run government fiscal balance. For a ceteris paribus cut in the income tax rate to improve long-run government balance, the intertemporal elasticity of substitution must exceed unity. A tax cut balanced by an expenditure cut is likely to improve the long-run balance even if it does not improve the short-run balance. The relationship between improving the long-run fiscal balance and economic welfare is also analyzed.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 31 (1999)
Issue (Month): 2 (May)
Pages: 162-86

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Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:2:p:162-86
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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