Phased-In Tax Cuts and Economic Activity
Christopher L. House, Matthew D. Shapiro
American Economic Review · 2006 · Volume 96 · Issue 5
Abstract
This paper uses a dynamic general equilibrium model to analyze and quantify the aggregate effects of the timing of tax rate changes enacted in 2001 (which called for successive rate reductions through 2006) and 2003 (which made immediate tax rate cuts scheduled for 2004 and 2006). The phased-in nature contributed to the slow recovery from the 2001 recession, while the elimination of the phase-in helped explain the increase in economic activity in 2003. The simulations suggest while the tax policy was a drag on the economy in 2001 and 2002, it increased economic growth in 2003, once phase-ins were eliminated. (JEL D58, E32, E62, H24, H25, O41)
Keywords
Business Fluctuations, Cycles, Personal Income and Other Nonbusiness Taxes and Subsidies, includes inheritance and gift taxes, Business Taxes and Subsidies including sales and value-added (VAT), Fiscal Policies and Behavior of Economic Agents: General
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