Do tax cuts starve the beast
Subtitle: the effect of tax changes on government spending
By: Christina D. Romer, David H. Romer.
Contributors: Romer, David.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13548.; Working paper series (National Bureau of Economic Research) -- working paper no. 13548.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 47
Subjects: Taxation; Government spending policy -- Econometric models
Description: The hypothesis that decreases in taxes reduce future government spending is often cited as a reason for cutting taxes. However, because taxes change for many reasons, examinations of the relationship between overall measures of taxation and subsequent spending are plagued by problems of reverse causation and omitted variable bias. To deal with these problems, this paper examines the behavior of government expenditures following legislated tax changes that narrative sources suggest are largely uncorrelated with other factors affecting spending. The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, they suggest that tax cuts may actually increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases. Examination of four episodes of major tax cuts reinforces these conclusions.
Notes: "October 2007"

Includes bibliographical references (p. 46-47).

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