This paper sets out to exam the question about the effects of a tax reduction and increased public investments. Furthermore the assumptions behind the calculations of the effects will be investigated. The calculations is based on a 5.9 billion gap used in either of the two ways. These two ways will be the vocal point throughout this paper in regards to the effects on the GDP and the public finances. Both suggestions are a part of the political debate in Denmark regarding the possibilities to create a state of growth in the economy. Therefore this paper examines the two ways from a Danish perspective. The 5.9 billion is derived from the postponed tax reductions which will be in effect by 2013. The tax-reduction will be placed in the upper percentiles and the increased public investments are advanced renovations in public buildings such as hospitals and schools. Our calculation shows that a tax reduction in the higher income groups makes the GDP grow by around 3.6 billion depending on the source of calculation. It will however affect the public finances with a loss between 3,245 and 2.301 billion. By the same token the calculations show that the public investment will have an increased GDP growth of 7.13 billion and will reflect negatively on the public budget with 2.95 billion. Thus, the effect of public investment is almost twice as great as the upper tax relief measured by increase in GDP. Predictions and calculations in this report produce results with relatively large differ-ences in the goals and effects when taken the small amount of money and similar economic back-ground into consideration. The differences are caused by the economic assumptions behind the cal-culations. In this paper the assumptions behind both policies are analysed in order to show their impact on the calculations. The assumptions behind the tax reduction are made up by the labour supply elasticity which primarily affects the time effect. The magnitudes of these effects are greatly questioned in this paper. The assumptions behind the public investments primarily consist of the crowding-out effect, which partly determine the proposed self-compensating of the investment. Both assumptions are crucial in the consideration of how the policy will manage to be self-financed. This paper concludes that, assumptions behind the calculations of the effects of a top tax reduction and public investment shows uncertainty in calculations of the effects of fiscal policies and makes these extremely difficult to perform. Also the changing empirical situation makes it even harder to predict the outcome of a financial initiative.
|Uddannelser||Basis - Samfundsvidenskabelig Bacheloruddannelse, (Bachelor uddannelse) Basis|
|Udgivelsesdato||1 jun. 2011|
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