Phased-In Tax Cuts and Economic Activity

48 Pages Posted: 20 Apr 2004 Last revised: 18 Dec 2022

See all articles by Christopher L. House

Christopher L. House

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: April 2004

Abstract

Phased-in tax reductions are a common feature of tax legislation. This paper uses a dynamic general equilibrium model to quantify the effects of delaying tax cuts. According to the analysis of the model, the phased-in tax cuts of the 2001 tax law substantially reduced employment, output, and investment during the phase-in period. In contrast, the immediate tax cuts of the 2003 tax law provided significant incentives for immediate production and investment. The paper argues that the rules and accounting procedures used by Congress for formulating tax policy have a significant impact in shaping the details of tax policy and led to the phase-ins, sunsets, and temporary tax changes in both the 2001 and 2003 tax laws.

Suggested Citation

House, Christopher L. and Shapiro, Matthew D., Phased-In Tax Cuts and Economic Activity (April 2004). NBER Working Paper No. w10415, Available at SSRN: https://ssrn.com/abstract=528996

Christopher L. House

University of Michigan at Ann Arbor - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Matthew D. Shapiro (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

and Survey Research Center
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National Bureau of Economic Research (NBER) ( email )

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United States
313-764-5419 (Phone)
313-764-2769 (Fax)

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