Dynamic Scoring: Alternative Financing Schemes

26 Pages Posted: 19 Dec 2006

See all articles by Eric M. Leeper

Eric M. Leeper

University of Virginia ; Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER); George Mason University - Mercatus Center

Shu-Chun S. Yang

CAEPR

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2006

Abstract

Neoclassical growth models predict that reductions in capital or labor 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 contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.

Keywords: Revenue feedback, capital tax, labor tax, debt management

JEL Classification: H2, H3, H6

Suggested Citation

Leeper, Eric Michael and Yang, Shu-Chun S., Dynamic Scoring: Alternative Financing Schemes (December 19, 2006). CAEPR Working Paper No. 2006-022, Available at SSRN: https://ssrn.com/abstract=952539 or http://dx.doi.org/10.2139/ssrn.952539

Eric Michael Leeper (Contact Author)

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George Mason University - Mercatus Center ( email )

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Shu-Chun S. Yang

CAEPR ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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