EC410-9.10

EC410-9.10



EC410-9.10

Part 1

Model

If the tax rate were cut to 20%, by how much (both in percentage terms and in absolute dollars) would GDP have to grow just to keep government revenue constant?

0.25(100) = 25 billion

0.2 n = 25

n = 25 x 10 / 2

n = 125

125 / 100 = 25 %

GDP must grow by 25 % to keep government revenue constant.

The general model for the given situation is

t1 GDP1 = t2 GDP2

Where,

GDP1 = pre-tax-cut GDP,

GDP2 = post-tax-cut GDP,

t1 = original tax rate,

t2 = new tax rate

Empirics

The conclusion given by Senator Hannah Coultear about the rate ...