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Dynamic Scoring in a Romer-style Economy

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Abstract

This paper explores the dynamic behavior of a Romer-style endogenous growth model, analyzing how changes in tax rates affect government revenue in the short run and the long run. I show that in this environment lowering taxes on financial income is unlikely to stimulate tax revenue in the long run and has modest effects on the tax base, contrary to some other studies of the dynamic response of revenue to tax rates. Calibrations of the model that suggest Laffer curve effects can be substantial require implausibly low values for the elasticity of substitution between varieties of intermediate goods. For more plausible parameter values, I find that around 20% of a tax cut would be self-financing due to an expansion in the tax base.

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  • Scrimgeour, Dean, 2010. "Dynamic Scoring in a Romer-style Economy," Working Papers 2010-02, Department of Economics, Colgate University.
  • Handle: RePEc:cgt:wpaper:2010-02
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    Cited by:

    1. Andreas Irmen & Amer Tabakovic, 2016. "Factor Income Distribution and Endogenous Economic Growth - When Piketty meets Romer -," DEM Discussion Paper Series 16-18, Department of Economics at the University of Luxembourg.
    2. van Oudheusden, P., 2012. "Dynamic Scoring Through Creative Destruction," Discussion Paper 2012-084, Tilburg University, Center for Economic Research.
    3. Andreas Irmen & Amer Tabakovic, 2020. "Factor Income Distribution And Endogenous Economic Growth: Piketty Meets Romer," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1342-1361, July.
    4. van Oudheusden, P., 2012. "Dynamic Scoring Through Creative Destruction," Other publications TiSEM 13955715-2cbb-443b-a099-9, Tilburg University, School of Economics and Management.

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