We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending.
- Authors
Romer, Christina D.; Romer, David H.
- Abstract
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 derive more reliable estimates, this paper examines the behavior of government expenditure 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, the point estimates suggest that tax cuts 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.
- Subjects
TAX cuts; PUBLIC spending; TAXATION; CAUSATION (Philosophy); ESTIMATES
- Publication
Brookings Papers on Economic Activity, 2009, p139
- ISSN
0007-2303
- Publication type
Article
- DOI
10.1353/eca.0.0046