Dynamic scoring requires the solution of a general equilibrium model. To solve a dynamic GE model, you need to specify how the government is going to satisfy its present-value budget constraint. You might be tempted to ask the model what happens if the government cuts taxes and never does anything else. But you won't get very far.I’ll only note that the Reagan Administration never exactly got around to addressing the run-up in Federal deficits from its tax cut. And we know the Administration of George W. Bush not only cut taxes twice but also increased Federal spending both through two expensive wars and that Prescription Drug Benefit. As one of his economic advisers, what was Greg Mankiw telling President Bush about satisfying the present-value budget constraint?
Wednesday, March 4, 2015
Mankiw on Paying for Tax Cuts
Maybe I was too critical of Greg Mankiw: