The Role of Dynamic Scoring in the Federal Budget Process: Closing the Gap between Theory and Practice

Altshuler, Rosanne; Bull, Nicholas; Diamond, John W.; Dowd, Tim; Moomau, Pamela

doi:10.1257/000282805774669754

Cited by 13 publications

(7 citation statements)

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“…R evenue estimation practices in the United States have recently received widespread attention (Diamond and Moomau, 2003;Altshuler et al, 2005;Auerbach, 2005;Carroll and Hrung, 2005;Page, 2005;Diamond, 2005;Gale and Orszag, 2005;Mankiw and Weinzierl, 2006;Feldstein, 2008;Leeper and Yang, 2008), but much less attention has been paid to this issue in other countries. In this paper, we consider this issue in the context of Norway, using as an example the personal income tax cuts enacted in 2006.…”

Section: Introductionmentioning

confidence: 99%

The Short-Term Ratio of Self-Financing of Tax Cuts: An Estimate for Norway's 2006 Tax Reform

Thoresen¹,

Aasness²,

Jia³

2010

National Tax Journal

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This article discusses revenue estimating procedures for changes to the personal income tax. Using partial equilibrium revenue estimates of the personal income tax cuts introduced in Norway in 2006 as an example, we fi nd wide variation in the estimates of the revenue costs of cuts depending on various factors, even in the short term. Our revenue estimates take into account labor supply responses and changes in revenues from payroll taxes and indirect taxes, and we compare our results to those obtained using current static revenue estimating procedures. In general, we fi nd that more than 60 percent of the static revenue cost of personal income tax cuts is offset with higher tax revenues from other tax bases and higher personal income taxes due to increases in labor supply.

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Section: Introductionmentioning

confidence: 99%

The Short-Term Ratio of Self-Financing of Tax Cuts: An Estimate for Norway's 2006 Tax Reform

Thoresen¹,

Aasness²,

Jia³

2010

National Tax Journal

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“…For a discussion of the importance of differentiating and carefully modeling tax rates by source of income, see Altshuler, Bull, Diamond, Dowd and Moomau (2005).…”

Section: Baseline Forecastmentioning

confidence: 99%

Use of Fiscal Policy Reaction Functions in Analyzing the Macroeconomic Effects of Tax Policy

Bull¹,

Dowd²

2005

National Tax Journal

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We model an empirically estimated fi scal policy reaction function (FPRF) in a macroeconomic growth model. In general, an FPRF uses information about the path of past and expected future macroeconomic events and fi scal policy to forecast future fi scal policy reactions. We show that an empirically estimated FPRF, consistent with past legislative activity, can return unsustainable fi scal forecasts to sustainability. However, we also demonstrate that modeling other variants of an FPRF, equally consistent with the literature, do not return fi scal forecasts to sustainability. We conclude that additional empirical work is necessary before implementation of an FPRF in macroeconomic models could decisively improve modeling results or their presentation.

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“…Auerbach (2005), Elmendorf (2015), Gale and Samwick (2017), and Auerbach et al (2017) emphasize that these fiscal closing assumptions may induce economic behavior unrelated to the policy proposal, as the models typically used for policy analysis do not exhibit the Ricardian equivalence property. While Diamond and Moomau (2003), Altshuler et al (2005), Congressional Budget Office (2005), and Joint Committee on Taxation (2006aTaxation ( , 2006b provide evidence that budget-window projections of macroeconomic activity following a tax policy change are sensitive to alternative fiscal instruments used for the closing assumption, there is little evidence that exists to show how well the within-budgetwindow bias associated with a particular fiscal instrument can be mitigated.…”

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confidence: 99%

Dynamic Scoring: An Assessment of Fiscal Closing Assumptions

Moore

Pecoraro

2020

Public Finance Review

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Analysis of fiscal policy changes using general equilibrium models with forward-looking agents typically requires a counterfactual adjustment to some fiscal instrument in order to achieve the debt sustainability implied by the government’s intertemporal budget constraint. The choice of fiscal instrument can induce economic behavior unrelated to the policy change in models where Ricardian Equivalence does not hold. In this article, we use an overlapping generations framework to examine the effects of alternative fiscal closing assumptions on projected changes to economic aggregates following a change in tax policy, assessing the extent to which the bias associated with a particular fiscal instrument can be mitigated. While we find quantitative differences in projected macroeconomic activity across alternative fiscal instruments, these differences tend to shrink as the closing date is delayed. Ultimately, the choice of fiscal instrument becomes relatively unimportant if fiscal closing can be delayed sufficiently into the future.

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The Role of Dynamic Scoring in the Federal Budget Process: Closing the Gap between Theory and Practice

Cited by 13 publications

References 1 publication

The Short-Term Ratio of Self-Financing of Tax Cuts: An Estimate for Norway's 2006 Tax Reform

The Short-Term Ratio of Self-Financing of Tax Cuts: An Estimate for Norway's 2006 Tax Reform

Use of Fiscal Policy Reaction Functions in Analyzing the Macroeconomic Effects of Tax Policy

Dynamic Scoring: An Assessment of Fiscal Closing Assumptions

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