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Dynamic Scoring of Tax Plans

Benjamin R. Page, Kent Smetters
September 16, 2016
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Abstract

This paper gives an overview of the methodology behind the short- and long-run dynamic scoring of Hillary Clinton’s and Donald Trump’s tax plan proposals. Following the practice of official government estimators, we use a Keynesian model to estimate the short-term effects of policy changes on output relative to its full-employment level. That model assumes tax policy can influence the economy by changing the demand for goods and services. For example, a tax cut could encourage consumers to spend more and businesses to invest more, raising demand and thus total employment. In the long-run, demand-side stimulus is ineffective because we assume the economy returns to full employment. We estimate the long-run effects on potential output using the Penn Wharton Budget Model, which reflects how taxes can affect incentives to work, save, and invest. The model also reflects the effects of budgetary policies on interest rates and the resultant effects on investment decisions.

Research Area

Campaigns, Proposals, and Reforms Presidential campaign proposals
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Meet the Experts

  • Benjamin R. Page
    Senior Fellow
  • Kent Smetters
Research report

An Analysis of Donald Trump's Revised Tax Plan

James R. Nunns, Leonard E. Burman, Jeffrey Rohaly, Joseph Rosenberg
October 18, 2016
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  • © Urban Institute, Brookings Institution, and individual authors, 2016.