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Dynamic Scoring: Alternative Financing Schemes

Author

Listed:
  • Eric M. Leeper

    (Indiana University)

  • Shu-Chun Susan Yang

    (Joint Committee on Taxation)

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.

Suggested Citation

  • Eric M. Leeper & Shu-Chun Susan Yang, 2006. "Dynamic Scoring: Alternative Financing Schemes," CAEPR Working Papers 2006-022, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2006022
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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2006-022.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Revenue feedback; capital tax; labor tax; debt management;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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