Dynamic scoring predicts the impact of fiscal policy changes by forecasting the effects of economic agents' reactions to incentives created by policy. It is one of two main methods for analyzing policy changes, the other being static scoring.
The method has a potential for heightened accuracy coming from forecasting the responses of economic agents' future behavior under the new policy. Difficulty increases as the proposed policy becomes increasingly unlike current policy. The difficulty of dynamic scoring also increases as the time horizon under consideration lengthens. This is due to any model's intrinsic inability to account for unforeseen external shocks in the future. Dynamic scoring is more accurate than static scoring when the econometric model correctly captures how households and firms will react to a policy changes.
When dynamic scoring was used to draw the 2013 budget in Kansas, the state chose to cut personal income taxes to stimulate economic growth. The authors of the plan claimed that "cutting taxes can have a near immediate and permanent impact," arguing for tax cuts over rebuilding roads or improving the quality of schools. In addition, the tax on "pass-through" businesses was eliminated. After continual revenue deficits, the largest sales tax increase in Kansas history, downgrades from Moody's and Standard & Poors and economic performance that lagged neighboring states, the election of 2016 was a referendum on tax policy and the legislature increased income taxes over the governor's veto Kansas' "rainy day" fund reported levels $570 million lower than before the tax cut, even though Kansas had directed more tax revenue to it.
Video Dynamic scoring
United States
Using dynamic scoring has been promoted by Republican legislators to argue that supply-side tax policy, for example the Bush tax cuts of 2001 and 2011 GOP Path to Prosperity proposal, return higher benefits in terms of GDP growth and revenue increases than are predicted from static scoring. Some economists argue that their dynamic scoring conclusions are overstated, pointing out that CBO practices already include some dynamic scoring elements and that to include more may lead to politicization of the department.
On January 6, 2013, the version of the Pro-Growth Budgeting Act of 2013 included in the Budget and Accounting Transparency Act of 2014 passed the United States House of Representatives as part of their Rules adopted in House Resolution 5, passed with the exclusive support of the Republican Party (United States) by a vote of 234-172. The same rules package for the year had other controversial provisions funded. The bill will require the Congressional Budget Office to use dynamic scoring to provide a macroeconomic impact analysis for bills that are estimated to have a large budgetary effect. The text of the provision reads:
Maps Dynamic scoring
See also
- Laffer curve
References
External links
- Doesn't Anyone Know the Score? by Newt Gingrich and Peter Ferrara
- Dynamic Due by Bruce Bartlett
- "Here's How Part B Can Save Medicare," by Michael Johns, HME News, July 2009.
- Dynamic Scoring: An Introduction to the Issues By Alen J. Auerbach
- Dynamic Analysis at Treasury: What Are the Next Steps? By Tracy Foertsch
- Resources on the Dynamic Scoring Issue By The Tax Foundation
- Dynamic Scoring: A Back-of-the-Envelope Guide by N. Gregory Mankiw and Matthew Weinzierl
- The Bush Budget's Hidden Gold: Dynamic Scoring Comes to the Treasury By William Beach
- Why the GOP loves 'dynamic scoring' by Suzy Khimm
- The Problem with Dynamic Scoring by Josh Barro
Source of article : Wikipedia
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