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http://ssrn.com/abstract=316791
 
 

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The Bush Tax Cut and National Saving


Alan J. Auerbach


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

June 2002

NBER Working Paper No. w9012

Abstract:     
Following through on pledges made during his election campaign, President Bush proposed and Congress passed a substantial tax cut in 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). Much has been written about the size of the tax cut, its impact on the federal budget, its distributional consequences, and its short-run macroeconomic impact. There has been less focus on EGTRRA's incentive effects; one of the most important potential behavioral effects is on saving. To analyze the behavioral effects of the Bush tax cut on saving and other macroeconomic variables, I use the Auerbach-Kotlikoff (1987) model in conjunction with the NBER's TAXSIM model. An interesting by-product of this analysis is the 'dynamic scorin g' of the tax cut - the estimated feedback effects of behavior on revenue. By comparing the revenue losses generated by the model with those that would occur without any behavioral response, one can estimate how much of the static revenue loss would be recouped by expanded economic activity. The simulations suggest that dynamic scoring has a significant impact on estimated revenue losses, but that the tax cut's impact on national saving is still negative in the long run.

Number of Pages in PDF File: 43

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Date posted: June 21, 2002  

Suggested Citation

Auerbach, Alan J., The Bush Tax Cut and National Saving (June 2002). NBER Working Paper No. w9012. Available at SSRN: http://ssrn.com/abstract=316791

Contact Information

Alan Jeffrey Auerbach (Contact Author)
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)
National Bureau of Economic Research (NBER) ( email )
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Cambridge, MA 02138
United States
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
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Munich, DE-81679
Germany
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