Tax Projections and the Budget: Lessons from the 1980s

Alan Auerbach

No 5009, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Some economists have argued that the disincentive effects of marginal tax rate increases in the 1980s caused revenue to rise by less than had been anticipated. To evaluate the hypothesis, this paper considers OMB revenue forecasts and forecast errors for the period 1982-93. If the revenue gains from tax increases, and the revenue losses from tax cuts, were overstated because of inadequate allowance for behavioral responses, then the forecast errors should be negatively related to the initial revenue estimates of the impact of policy changes. For excise taxes and corporate income taxes, the results suggest that the systematic overprediction of revenues during the period can be explained in part by an underestimate of behavioral responses to taxation.

JEL-codes: H30 H61 (search for similar items in EconPapers)
Date: 1995-02
Note: PE
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Citations: View citations in EconPapers (17)

Published as American Economic Review, vol. 85, no, 2, pp. 165-169, (May 1995)

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