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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

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Dynamic Scoring in the Ramsey Growth Model

Ergete Ferede1

1Grant MacEwan College,

Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 8, Issue 1, ISSN (Online) 1935-1682, DOI: 10.2202/1935-1682.1948, September 2008

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This paper extends the Mankiw and Weinzierl (2006) model and examines the revenue effects of capital and labor income tax cuts under alternative financing regimes. Our analysis suggests that the revenue losses from capital and labor income tax cuts are the highest when the tax cuts are productive spending-financed and the lowest when transfer payments are used to finance the tax cuts. For plausible parameter values consistent with the US economy, we find that about 47 percent of a transfer-financed capital income tax cut is self-financing. The corresponding result for a productive spending-financed capital income tax cut is only 6 percent.

Keywords: dynamic scoring; taxation; growth

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