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Issues in Analyzing the Macroeconomic Effects of Tax Policy

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  • Diamond, John W.
  • Moomau, Pamela H.

Abstract

This paper provides a description of issues that are important in determining the macroeconomic effects of tax policy changes. We discuss the role of assumptions about general macroeconomic modeling issues like market behavioral parameters, and the actions of fiscal and monetary authorities. Estimating the revenue feedback effects of tax policy also requires several applied measurement issues that do not typically arise in macroeconomic modeling. Each of these issues introduces significant sources of uncertainty into the macroeconomic analysis of tax policy. We use simulations of a hypothetical 10 percent cut in individual income tax rates to illustrate issues and challenges.

Suggested Citation

  • Diamond, John W. & Moomau, Pamela H., 2003. "Issues in Analyzing the Macroeconomic Effects of Tax Policy," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(3), pages 447-462, September.
    • Handle: RePEc:ntj:journl:v:56:y:2003:i:3:p:447-62
    DOI: 10.17310/ntj.2003.3.01
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    1. N. Eissa & H. W. Hoynes, "undated". "The Earned Income Tax Credit and the Labor Supply of Married Couples," Institute for Research on Poverty Discussion Papers 1194-99, University of Wisconsin Institute for Research on Poverty.
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    Cited by:

    1. Thor O. Thoresen & Jørgen Aasness & Zhiyang Jia, 2008. "More realistic estimates of revenue changes from tax cuts," Discussion Papers 545, Statistics Norway, Research Department.
    2. Rosanne Altshuler & Nicholas Bull & John Diamond & Tim Dowd & Pamela Moomau, 2005. "The Role of Dynamic Scoring in the Federal Budget Process: Closing the Gap between Theory and Practice," American Economic Review, American Economic Association, vol. 95(2), pages 432-436, May.
    3. Rachel Moore & Brandon Pecoraro, 2020. "Dynamic Scoring: An Assessment of Fiscal Closing Assumptions," Public Finance Review, , vol. 48(3), pages 340-353, May.
    4. Kerk Phillips & Richard W. Evans & Jason DeBacker, 2017. "Integrating Microsimulation Tax Functions into a DGE Macroeconomic Model: A Canonical Example," EcoMod2017 10191, EcoMod.
    5. Arwiphawee Srithongrung & Isaac S nchez-Ju rez, 2015. "Fiscal Policies and Subnational Economic Growth in Mexico," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 11-22.

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