A Greater Multiplier with a Targeted Tax and Spend Strategy

22 Pages Posted: 14 Sep 2014

Multiple version iconThere are 2 versions of this paper

Date Written: September 12, 2014

Abstract

Traditional macroeconomics finds a multiplier of 1.0 when taxes and expenditures are increased the same amount. It results from uniform tax increases and a similar constant marginal propensity to consume. I show that a greater multiplier results when the tax rate increases on those with a lower marginal propensity to consume and the money spent goes to those with a higher marginal propensity to consume. This allows an economy to both grow and maintain a balanced budget. It would be most useful to increase a “sluggish” economy as opposed to a severe recession. I argue that the assumptions used are quite realistic. The overall model and its assumptions present a testable exercise.

Keywords: economic growth, multiplier

JEL Classification: E12,E21

Suggested Citation

Long, Michael S., A Greater Multiplier with a Targeted Tax and Spend Strategy (September 12, 2014). Available at SSRN: https://ssrn.com/abstract=2495602 or http://dx.doi.org/10.2139/ssrn.2495602

Michael S. Long (Contact Author)

Rutgers University at Newark ( email )

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Newark, NJ 07102
United States
973-353-5471 (Phone)

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