Working Paper: NBER ID: w10415
Authors: Christopher L. House; Matthew D. Shapiro
Abstract: Phased-in tax reductions are a common feature of tax legislation. This paper uses a dynamic general equilibrium model to quantify the effects of delaying tax cuts. According to the analysis of the model, the phased-in tax cuts of the 2001 tax law substantially reduced employment, output, and investment during the phase-in period. In contrast, the immediate tax cuts of the 2003 tax law provided significant incentives for immediate production and investment. The paper argues that the rules and accounting procedures used by Congress for formulating tax policy have a significant impact in shaping the details of tax policy and led to the phase-ins, sunsets, and temporary tax changes in both the 2001 and 2003 tax laws.
Keywords: No keywords provided
JEL Codes: E62; E32; E65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| slow recovery from the 2001 recession (N12) | declines in labor supply (J20) |
| timing of tax cuts on labor income (H31) | employment (J68) |
| timing of tax cuts on labor income (H31) | output (C67) |
| delayed tax cuts on capital income (H24) | investment (G31) |
| immediate tax cuts under the 2003 law (H20) | employment (J68) |
| immediate tax cuts under the 2003 law (H20) | GDP (E20) |