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Thursday, December 23, 2004

Baron & McCaffery on Starving the Beast by Cutting Taxes

SsrnJonathan Baron (Pennsylvania, Wharton School) & Edward J. McCaffery (USC) have posted Starving the Beast: The Psychology of Budget Deficits on SSRN. Here is the abstract:

Many opponents of big government favor a strategy of "starving the beast," cutting taxes today with the expectation that spending cuts will follow tomorrow. Why might such a strategy work? Various heuristics and biases help to explain how it can. In two experiments conducted on the World Wide Web, subjects chose general levels of taxation and public spending from various hypothetical starting points. Subjects wanted to reduce both taxes and spending, preferring balanced budgets and even surpluses to deficits. When asked about specific spending cuts, however, subjects showed a marked reluctance to make cuts, leading to deficits. Subjects also showed an anchor and underadjustment bias, changing their responses in light of various baselines, and failing to completely close existing deficits. The "starving the beast" phenomenon, by pairing specific tax cuts with the general, abstract idea of spending cuts, can thus succeed in a population preferring fiscal balance. Once the deficit is created, it will likely persist, influencing future policy preferences.

http://taxprof.typepad.com/taxprof_blog/2004/12/baron_mccaffery.html

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Listed below are links to weblogs that reference Baron & McCaffery on Starving the Beast by Cutting Taxes:

» Testing "Starve the Beast" from Left of the Middle
The "Starve the Beast" strategy is what GWB is pursuing now (and what Reagan pursued to a point). It's a policy where you cut taxes now and say that you'll cut spending later. What those that believe in StB believe will happen is that deficits will g... [Read More]

Tracked on Dec 23, 2004 12:22:15 PM

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