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Dynamic Scoring: Alternative Financing Schemes

26 Pages Posted: 19 Dec 2006  

Eric M. Leeper

Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER)

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 M. 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)

Indiana University at Bloomington - Department of Economics ( email )

304 Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-9157 (Phone)
812-855-3736 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shu-Chun S. Yang

CAEPR ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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