S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) 경제논집 경제논집 vol.51 (2012)
미국의 감세정책 실험: 과연 경제 살리기에 성공했는가?
The Experiment of Tax Cut in the U. S.: Has It Been Successful in Pumping Up the Economy?
- Issue Date
- 서울대학교 경제연구소
- 경제논집, Vol.51 No.2, pp. 207-262
- Tax cut; Labor supply; Investment; Saving; Elasticity of taxable income with respect to marginal tax rates; 감세정책; 노동공급; 투자; 저축; 소득의 한계세율탄력성
- As soon as President R. Reagan took office, he introduced a massive tax cut program which was unprecedented in scope as well as in scale. The top income tax rate which was 70% before was reduced to the level of 28% while he was in office. The question is whether this unprecedented tax cut turned out to be effective in stimulating the American economy in a substantial way. The verdict is widely divided. Some people argue that the tax cut just led to a massive budget deficit and ever widening income disparity without visible positive effects. But others counter that the positive effects of the tax cut are hard to deny. To test whether a tax cut is effective in stimulating the economy, one should examine closely what happened to labor supply, saving and investment behaviors after taxes are cut. Only if it is observed that there has been a significant increase in each of these activities, one could conclude that the tax cut is effective in stimulating the economy. However, the results of most empirical studies suggest that just the opposite could be the case. That is, in view of empirical evidence, it is unlikely that the verdict is favorable for the tax cut. For labor supply and saving to increase substantially in response to reduced tax rates, their price elasticities should be large enough. But a large majority of empirical studies conclude that their price elasticities are very small. In case of investment, it has been found that a tax cut results in a reduction in the user cost of capital or marginal effective tax rate. Although this finding may be used as an evidence that investment can be stimulated by a tax cut, it should be pointed out that investment in the actual world depends on many other factors. It is almost a consensus that theimpact of tax impetus on investment is very limited. To counter the argument that a tax cut has failed to stimulate the American economy, advocates of the tax cut introduced the concept of the elasticity of taxable income with respect to marginal tax rates. If the value of the elasticity is large enough, they argue, a reduction in tax rates would result in an increase in tax revenue, and the increase in tax revenue implies that the economy has been effectively stimulated. However, most of empirical studies conclude that the value of the elasticity is not that large. Moreover, the finding that most of the increase in taxable income comes from income shifting, not income creation, further weakens the position of the advocates of the tax cut.