Budget Balance, Welfare, and the Growth Rate: "Dynamic Scoring" of the Long-Run Government Budget
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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Volume (Year): 31 (1999)
Issue (Month): 2 (May)
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