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Article: Issues in analyzing the macroeconomic effects of tax policy.
- Article from:
- National Tax Journal
- Article date:
- September 1, 2003
- Author:
CopyrightCOPYRIGHT 2003 National Tax Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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INTRODUCTION
This paper provides a description of issues that are important in determining the macroeconomic effects of tax policy changes. The theoretical issues in modeling the effects of tax policy on economic growth are the same as the theoretical issues involved generally in macroeconomic modeling. Tax policy can affect both the long-run capacity of the economy, and short-run fluctuations in aggregate demand. These two types of effects are typically analyzed with different types of economic models. Forecasting the magnitude of these effects requires numerous assumptions about individuals' and firms' reactions to changes in their after-tax income.
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