Phased-In Tax Cuts and Economic Activity

Christopher L House, Matthew D Shapiro
2006 The American Economic Review  
Phased-In Tax Cuts and Economic Activity 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
more » ... ction 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.
doi:10.1257/aer.96.5.1835 fatcat:atdx65lbwfh7bg4uqsclvcxtsq