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More realistic estimates of revenue changes from tax cuts

Procedures of revenue estimation of changes in the personal income tax are discussed. Using revenue estimates of the 2006 tax cuts in the personal income tax in Norway as an example, we show that estimates of costs of cuts differ substantially when different effects are brought into consideration. Estimates of revenue effects which take labor supply responses and effects through indirect taxation and corporate taxes into account are presented and contrasted with estimates obtained by current procedures. Our estimates indicate that a substantial part of the initial outlay is returned; approximately 56 percent comes back as increased tax revenues from other tax bases and increased personal income tax following from labor supply adjustments.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 545.

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Date of creation: May 2008
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Handle: RePEc:ssb:dispap:545
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  1. Rosanne Altshuler & Nicholas Bull & John Diamond & Timothy Dowd & Pamela Moomau, 2006. "The Role of Dynamic Scoring in the Federal Budget Process: Closing the Gap Between Theory and Practice," Departmental Working Papers 200622, Rutgers University, Department of Economics.
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  12. Creedy, John & Gemmell, Norman, 2005. "Wage growth and income tax revenue elasticities with endogenous labour supply," Economic Modelling, Elsevier, vol. 22(1), pages 21-38, January.
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  17. Benjamin R. Page, 2005. "CBO's Analysis of the Macroeconomic Effects of the President's Budget," American Economic Review, American Economic Association, vol. 95(2), pages 437-440, May.
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