Phased-In Tax Cuts and Economic Activity

Christopher House () and Matthew Shapiro

No 10415, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2004-04
Note: EFG PE
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Citations: View citations in EconPapers (7)

Published as Christopher L. House & Matthew D. Shapiro, 2006. "Phased-In Tax Cuts and Economic Activity," American Economic Review, American Economic Association, vol. 96(5), pages 1835-1849, December.

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Journal Article: Phased-In Tax Cuts and Economic Activity (2006)
Working Paper: Phased-In Tax Cuts and Economic Activity (2004)
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