Are Tax Cuts Really Expansionary?
53 Pages Posted: 22 Feb 2001 Last revised: 9 Jan 2002
Date Written: September 1984
In this paper, we re-examine the standard analysis of the short-run effect of a personal tax cut. If consumer spending generates more money demand than other components of GNP, then tax cuts may, by increasing the demand for money, depress aggregate demand. We examine a variety of evidence and conclude that the necessary condition for contractionary tax cuts is probably satisfied for the U.S. economy.
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