Starve-the-Beast Tax Policies Don't Work
Posted at 9:45 a.m. on Nov. 28, 2012
Douglas Clement at the Federal Reserve Bank of Minneapolis interviewed Christina Romer and David Romer about how tax levels affect government spending.
Key quote: “Well, a major motivation that people have put forward for cutting taxes is their concern that government is too large… This is something that Ronald Reagan was very explicit about. It was one of the motivations for his tax cuts, and it goes under the name of the ‘starve-the-beast’ hypothesis… In the paper on the starve-the-beast hypothesis, we go through the history of tax changes and take out the ones that are motivated by decisions that had already been made to increase spending.”
“And what we find is no evidence for starve-the-beast. There’s no systematic tendency for spending to fall after tax cuts relative to what it otherwise would have been… Tax cuts led, eventually, to tax increases.”