NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Projections and the Budget: Lessons from the 1980s

Alan J. Auerbach

NBER Working Paper No. 5009 (Also Reprint No. r1976)
Issued in February 1995
NBER Program(s):   PE

Some economists have argued that the disincentive effects of marginal tax rate increases in the 1980s caused revenue to rise by less than had been anticipated. To evaluate the hypothesis, this paper considers OMB revenue forecasts and forecast errors for the period 1982-93. If the revenue gains from tax increases, and the revenue losses from tax cuts, were overstated because of inadequate allowance for behavioral responses, then the forecast errors should be negatively related to the initial revenue estimates of the impact of policy changes. For excise taxes and corporate income taxes, the results suggest that the systematic overprediction of revenues during the period can be explained in part by an underestimate of behavioral responses to taxation.

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Document Object Identifier (DOI): 10.3386/w5009

Published: American Economic Review, vol. 85, no, 2, pp. 165-169, (May 1995)

 
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