Should-Read: Christina Romer and David Romer (2009): Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending

July 20, 2017
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Should-Read: Christina Romer and David Romer (2009): Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending

Should-Read: Christina Romer and David Romer (2009): Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending: “The hypothesis that decreases in taxes reduce future government
spending is often cited as a reason for cutting taxes… https://www.brookings.edu/bpea-articles/do-tax-cuts-starve-the-beast-the-effect-of-tax-changes-on-government-spending/

…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…

(Why?)

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