Dynamic scoring: Alternative financing schemes

Eric Leeper, Shu-Chun Susan Yang

Research output: Contribution to journalArticleResearchpeer-review

33 Citations (Scopus)

Abstract

Neoclassical growth models predict that reductions in capital or labor income tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can be expansionary or contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.
Original languageEnglish
Pages (from-to)159 - 182
Number of pages24
JournalJournal of Public Economics
Volume92
Issue number1-2
DOIs
Publication statusPublished - 2008
Externally publishedYes

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