Tuesday, August 4, 2009

Tax Cuts are Tricky

Jeff Frankel argues that the tax cut portions of the stimulus have not been effective, and notes an irony:
The Reagan tax cuts of 1981-83 and the Bush tax cuts of 2001-03 were both explicitly designed to boost saving — hence their focus on capital income and higher income brackets — and yet in both cases private saving fell in their aftermath. The tax cuts of January 2008 and February 2009 were both explicitly designed to boost consumption; yet private saving rose in their aftermath !
Of course, their effects really should be judged relative to a counter-factual...

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