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Economic stimulus

Economic stimulus

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Howard Gleckman

From The Briefing Book

From the Briefing Book

How do taxes affect the economy in the short run?

December 20, 2015 by tpcwebsite

How do taxes affect the economy in the short run?

Primarily through their impact on demand. Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity.

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How do taxes affect the economy in the long run?

December 20, 2015 by tpcwebsite

How do taxes affect the economy in the long run?

Primarily through the supply side. High marginal tax rates can discourage work, saving, investment, and innovation, while specific tax preferences can affect the allocation of economic resources. But tax cuts can also slow long-run economic growth by increasing deficits. The long-run effects of tax policies thus depend not only on their incentive effects but also their deficit effects.

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What characteristics make fiscal stimulus most effective?

December 20, 2015 by tpcwebsite

What characteristics make fiscal stimulus most effective?

Fiscal stimulus can raise output and incomes in the short run. To have the greatest impact with the least long-run cost, the stimulus should be timely, temporary, and targeted.

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