Raising Taxes to Balance the Budget: How Effects on Output and Labor Supply Complicate the Matter
Abstract/Contents
- Abstract
- The United States and many major European countries currently are running large budget deficits, and most of these countries also confront significant national debt. Many are now seeking to restore fiscal discipline by cutting spending, raising taxes, or doing both. In this thesis, I explore what would occur if the United States or any of seven major European countries (France, Germany, Italy, the United Kingdom, Greece, Spain, and Sweden) attempted to balance its budget simply by raising taxes. I also determine what would occur if a country decided to balance its budget by using tax increases to accomplish half of its budget fix and cutting government spending to do the rest. To pursue this analysis, I first employ a simple static model to gain some understanding of how changes in tax rates affect how much people work. I then develop a more realistic and sophisticated dynamic general equilibrium model and gradually add refinements to it. With that model, I find that if government spending is not reduced, all countries except Sweden, which has only a small budget deficit, are either incapable of achieving a balanced budget in one year or could do so only by suffering dire economic consequences. Even if cuts in government spending account for 50% of the budget fix, all countries under analysis (except Greece which is unable to balance its budget under any of the four scenarios I posit) would experience at least some loss in output, and many would face considerable hardship.
Description
| Type of resource | text |
|---|---|
| Date created | May 2011 |
Creators/Contributors
| Author | Hirshman, Gregory |
|---|---|
| Primary advisor | Hall, Robert |
| Degree granting institution | Stanford University, Department of Economics |
Subjects
| Subject | Stanford Department of Economics |
|---|---|
| Subject | Labor supply |
| Subject | tax rates |
| Subject | government spending |
| Subject | budget deficit |
| Subject | United States |
| Subject | Continental Europe |
| Subject | Scandinavia |
| Genre | Thesis |
Bibliographic information
| Related item | |
|---|---|
| Location | https://purl.stanford.edu/th697xr8096 |
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Preferred citation
- Preferred Citation
- Hirshman, Gregory. (2011). Raising Taxes to Balance the Budget: How Effects on Output and Labor Supply Complicate the Matter. Stanford Digital Repository. Available at: https://purl.stanford.edu/th697xr8096
Collection
Stanford University, Department of Economics, Honors Theses
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