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| Growth estimate 1 - Diamond study SupportiveArgument1 #231727 Based on simulations using a widely-used general equilibrium growth model, John Diamond of Rice University estimates the macro-dynamic growth impact of something like the Romney tax plan at 5.4 percent over a decade. This is used in the revenue estimates made by Rosen. | Two important objections have been raised to the Diamond study and its use by Rosen to estimate tax impacts. These objections are added as opposing nodes to this one.
It is also important to note that Diamond's use of the TPA model results in a 6% increase in the labor supply. However this leaves unanswered how this supply response will be distributed between new worker participation (the extensive margin) or increased hours of work (the intensive margin). To answer this question he relies on a separate study showing the great bulk will be increased worker participation. This analysis is added as a supportive node to this one - and is then challenged by another commentator on the ground that the simulation model and the Blundell study are incompatible. |
+Citations (1) - CitationsAdd new citationList by: CiterankMapLink[1] The Economic Effects of the Romney Tax Plan
Author: John Diamond - Fellow in Public Finance, Rice University
Publication info: 3 August 2012
Cited by: Peter Baldwin 7:00 AM 22 October 2012 GMT
Citerank: (3) 231730Assumes revenue neutralityIn his simulation leading to the 5.4 percent growth estimate Diamond assumes that the Romney tax plan is revenue neutral. Yet Rosen is using the Diamond growth estimate to show that the plan can be revenue-neutral. Therefore the argument is circular.1198CE71, 231969Labor force analysisDiamond relies on a separate paper to support his claim that most of the labor supply response arising from his simulation will be due to increased workforce participation rather than existing employees working longer.1198CE71, 232797Diamond simulationThe Economic Effects of the Romney Tax Plan1198CE71
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| | Excerpt / Summary Executive Summary
There is widespread recognition that the U.S. income tax is a complex, highly inefficient, and costly way of raising revenues to finance government expenditures. In this paper, I analyze a rough sketch of the Romney Tax Plan - a rate-reducing, base-broadening tax reform. The simulations show that such a base-broadening, rate-reducing reform would have significant positive economic effects on the U.S. economy, including increases in investment, the capital stock, employment, and real wages. These gains are in addition to increases in GDP, investment, consumption and employment that will occur as the U.S. economy continues to recover from the recent recession and as the population grows. Specifically, I find that the reform would, if passed immediately, increase GDP relative to baseline by 5.4 percentage points over the next decade, while creating 6.8 million jobs. |
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