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Quantitative Evaluations of Efficient Tax Policies for Lucas' Supply Side Models

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  • Laitner, John

Abstract

Robert Lucas's recent paper on supply-side economics (1990) finds a large welfare loss from taxation of interest income in the U.S. economy. The present work extends the analysis of steady-state equilibria to cover the transition paths that accompany tax reform. Calculations then show a 25 percent reduction in taxes on capital's income, instituted through a carefully designed sequence of steps, yielding a 1-1.5 percent welfare gain. The analysis also considers government debt and an investment tax credit. In addition, it reveals a potential problem with one aspect of the model's stability properties, when growth is purely endogenous. Copyright 1995 by Royal Economic Society.

Suggested Citation

  • Laitner, John, 1995. "Quantitative Evaluations of Efficient Tax Policies for Lucas' Supply Side Models," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 471-492, July.
  • Handle: RePEc:oup:oxecpp:v:47:y:1995:i:3:p:471-92
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    Cited by:

    1. Strulik, Holger, 2003. "Capital tax reform, corporate finance, and economic growth and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 595-615, December.
    2. Gareth Myles, 2000. "Taxation and economic growth," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 141-168, March.
    3. Emilio Espino & Martín González Rozada, 2013. "Normative Fiscal Policy and Growth: Some Quantitative Implications for the Chilean Economy," IDB Publications (Working Papers) 4648, Inter-American Development Bank.
    4. Temple, Jonathan, 2012. "The calibration of CES production functions," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 294-303.
    5. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier.
    6. Gemmell, Norman, 2001. "Fiscal Policy in a Growth Framework," WIDER Working Paper Series 084, World Institute for Development Economic Research (UNU-WIDER).
    7. Strulik, Holger & Trimborn, Timo, 2010. "Anticipated tax reforms and temporary tax cuts: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2141-2158, October.
    8. John Creedy & Norman Gemmell, 2002. "Publicly Financed Education in an Endogenous Growth Model," Treasury Working Paper Series 02/24, New Zealand Treasury.
    9. Ellen R. McGrattan & James A. Schmitz, 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
    10. repec:bla:ecinqu:v:55:y:2017:i:4:p:1689-1711 is not listed on IDEAS

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