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Dynamic Scoring: A Back-of-the-Envelope Guide

  • N. Gregory Mankiw
  • Matthew Weinzierl

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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File URL: http://www.economics.harvard.edu/pub/hier/2005/HIER2057.pdf
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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 2057.

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Date of creation: 2005
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Handle: RePEc:fth:harver:2057
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  1. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
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  15. N. Gregory Mankiw & Matthew Weinzierl, 2005. "Dynamic Scoring: A Back-of-the-Envelope Guide," Harvard Institute of Economic Research Working Papers 2057, Harvard - Institute of Economic Research.
  16. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
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  30. repec:fth:harver:1435 is not listed on IDEAS
  31. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics 37, Federal Reserve Bank of Minneapolis.
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