Tax Time

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"Tax Time"

by Ryan Avent

Tax cuts, as everyone knows, make for better stimulus than spending, since the money can be distributed right away. Except that government distribution of a tax rebate is only one step in the stimulus process. That money won’t actually start doing anything until people begin spending it, and they don’t generally spend it all at once. So notes Econbrowser‘s Menzie Chinn, who adds a chart of dynamic multipliers for spending and tax cuts from the OECD.

Those numbers on the x-axis are years after implementation. Now of course, it’s not a problem that the effects of stimulus provisions are sustained over several years; the recession is likely to be long, and even after recovery a sizable output gap will persist for some time. But it’s important to point out that those beating the tax-cuts-are-timelier drum aren’t being completely honest (or aren’t aware that they’re wrong).

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