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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11000.

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Date of creation: Dec 2004
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Publication status: published as Mankiw, N. Gregory and Matthew Weinzierl. "Dynamic Scoring: A Back-of-the-Envelope Guide," Journal of Public Economics, 2006, v90(8-9,Sep), 1415-1433.
Handle: RePEc:nbr:nberwo:11000
Note: EFG
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