Are Tax Cuts Really Expansionary?

N. Gregory Mankiw, Lawrence H. Summers

NBER Working Paper No. 1443 (Also Reprint No. r0810)
Issued in 1987
NBER Program(s):   EFG   PE

In this paper, we re-examine the standard analysis of the short-run effect of a personal tax cut. If consumer spending generates more money demand than other components of GNP, then tax cuts may, by increasing the demand for money, depress aggregate demand. We examine a variety of evidence and conclude that the necessary condition for contractionary tax cuts is probably satisfied for the U.S. economy.

(549 K)

Published: Mankiw, N. Gregory Mankiw and Lawrence H. Summers. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Vol. 18(November 1986): 415-429.

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