Greg Mankiw demonstrates:
Apparently, Team Obama is not convinced by the recent research of Christina and David Romer, who conclude:
tax changes have very large effects on output. Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still well over two percent.
That is, Team Obama assumes that tax changes are less than half as potent in influencing the economy as the new CEA Chair estimated them to be in her own research.
That’s the kind of change we can believe in!
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