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Anti‐Stagflationary Tax Cuts and the Problem of Investment*
Author(s) -
McDONALD IAN M.
Publication year - 1984
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1984.tb00863.x
Subject(s) - presumption , economics , investment (military) , inflation (cosmology) , unemployment , monetary economics , balance (ability) , tax policy , macroeconomics , microeconomics , tax reform , public economics , medicine , physics , politics , theoretical physics , political science , law , physical medicine and rehabilitation
If prices are affected by both cost‐push and demand‐pull factors then a change in the policy mix towards fiscal ease can improve output, employment and the balance of trade without the price level rising. However the policy change may reduce investment and so affect the intertemporal allocation of resources. This paper derives conditions for tax cuts to ameliorate inflation and unemployment without a sacrifice of future output. Numerical examples suggest that one can have no presumption that the conditions are or are not likely to hold in general. The discussion is related to Corden's recent analysis of a ‘free lunch’.