Are Tax Cuts Really Expansionary?
In this paper, we re-examine the standard analysis of the short-run effect of a personal tax cut. If consumer spending generates more money demand than other components of GNP, then tax cuts may, by increasing the demand for money, depress aggregate demand. We examine a variety of evidence and conclude that the necessary condition for contractionary tax cuts is probably satisfied for the U.S. economy.
|Date of creation:||Jan 1987|
|Date of revision:|
|Publication status:||published as Mankiw, N. Gregory Mankiw and Lawrence H. Summers. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Vol. 18(November 1986): 415-429.|
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