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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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