Tuesday, June 26, 2012 8:04pm

Laffer Curve

Question A: A cut in federal income tax rates in the US right now would lead to higher GDP within five years than without the tax cut.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: A cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 6
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 3
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 6
Bio/Vote History
         
Autor David Autor MIT Disagree 5
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 4
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Uncertain 9
Bio/Vote History
         
Chevalier Judith Chevalier Yale Did Not Answer
Bio/Vote History
         
Currie Janet Currie Princeton Disagree 6
Bio/Vote History
         
Cutler David Cutler Harvard Agree 4
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Disagree 4
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 3
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Did Not Answer
Bio/Vote History
         
Goldin Claudia Goldin Harvard Uncertain 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Uncertain 8
Probably, but the evidence is not as strong as you would think
Bio/Vote History
         
Greenstone Michael Greenstone Chicago No Opinion
would lead to higher GDP in short term at 5 yrs, less clear & depends on whether tax cuts are budget neutral. see fact 10 in below link.
-see background information here
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 5
The government has to satisfy its budget constraint, so one can't say anything about a tax cut without knowing what else happens.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 6
Results highly dependent on which rates are cut.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Uncertain 6
Everything depends on which taxes are cut.
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Agree 5
Lots of distorting effects of taxes. Costs of higher deficits probably modest at the 5 year horizon; eventually can't just keep borrowing.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 5
Depends on things such as the Fed's response, how permanent it is, how it is financed, and the change in marginal vs. average tax rates.
Bio/Vote History
         
Lazear Edward Lazear Stanford Agree 8
Academic evidence supports this. See Romer and Romer AER 2010; Bergh and Henriksen survey and book. Ed Prescott Eli Lecture 2002.
Bio/Vote History
         
Levin Jonathan Levin Stanford No Opinion
Bio/Vote History
Revote 11/2013 Uncertain 1
 
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 8
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Uncertain 8
To be effective the cut should benefit lower-income consumers. Absent measures to reduce the long-tem deficit, crisis risk could be higher.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Uncertain 7
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 5
Bio/Vote History
         
Shin Hyun Song Shin Princeton Uncertain 6
Bio/Vote History
         
Stock James Stock Harvard Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 8
Vague question. Whose taxes? (The median "taxpayer" right now pays zero.) And where does the revenue come from?
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 4
I assume you mean relative to "current law".
Bio/Vote History
         
Udry Christopher Udry Yale Agree 2
Bio/Vote History
         
Zingales Luigi Zingales Chicago Agree 4
If the cut is permanent
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Strongly Disagree 6
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Strongly Disagree 9
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 7
Bio/Vote History
         
Autor David Autor MIT Strongly Disagree 8
Not aware of any evidence in recent history where tax cuts actually raise revenue. Sorry, Laffer.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Strongly Disagree 6
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Strongly Disagree 10
Bio/Vote History
         
Chevalier Judith Chevalier Yale Did Not Answer
Bio/Vote History
         
Currie Janet Currie Princeton Disagree 7
Bio/Vote History
         
Cutler David Cutler Harvard Disagree 1
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Disagree 7
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 3
This calls for a model. A lower tax rate applied to higher earnings could raise or lower tax revenue, depending on the extent of growth.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Disagree 6
Bio/Vote History
         
Fair Ray Fair Yale Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Did Not Answer
Bio/Vote History
         
Goldin Claudia Goldin Harvard Uncertain 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Disagree 10
Moon landing was real. Evolution exists. Tax cuts lose revenue. The reasearch has shown this a thousand times. Enough already.
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Strongly Disagree 7
All evidence that I'm aware of suggest that cutting tax rates "marginally" from their current levels would DECREASE revenues, even 5 yrs out
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 5
See previous question. In addition, few studies suggest we are already at the max of the Laffer curve, though we may be close.
Bio/Vote History
         
Holmström Bengt Holmström MIT Disagree 5
Seems implausible, but not impossible.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Strongly Disagree 8
That did not happen in the past. No reason to think it would happen now.
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Disagree 7
May look plausible on a cocktail napkin (or at a cocktail party), but not true empirically in the US.
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Disagree 10
Not enough time for capital to respond much (physical, human, technology), so it would require implausibly large labor supply elasticities.
-see background information here
Bio/Vote History
         
Lazear Edward Lazear Stanford Strongly Disagree 8
This is the Laffer curve issue. There is little (if any) evidence that rates exceed revenue-maximizing levels. See Mankiw, Feldstein.
Bio/Vote History
         
Levin Jonathan Levin Stanford No Opinion
Bio/Vote History
Revote 11/2013 Disagree 5
 
Maskin Eric Maskin Harvard No Opinion
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Disagree 8
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Disagree 8
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Disagree 7
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Strongly Disagree 7
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Disagree 5
Bio/Vote History
         
Shin Hyun Song Shin Princeton Disagree 8
Bio/Vote History
         
Stock James Stock Harvard Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago Disagree 7
Are we thinking of Japan as a model for this kind of "fiscal stimulus"?
Bio/Vote History
         
Thaler Richard Thaler Chicago Strongly Disagree 8
That's a Laffer!
Bio/Vote History
         
Udry Christopher Udry Yale Strongly Disagree 5
Bio/Vote History
         
Zingales Luigi Zingales Chicago Disagree 6
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

chicago booth