Dynamic Scoring: Alternative Financing Schemes

Eric Leeper and Shu-Chun Yang

No 2006-022, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

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 (search for similar items in EconPapers)
JEL-codes: H2 H3 H6 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-12
New Economics Papers: this item is included in nep-acc and nep-pbe
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Dynamic scoring: Alternative financing schemes (2008)
Working Paper: Dynamic Scoring: Alternative Financing Schemes (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2006022

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