Taxation and economic growth: Some calculations with a macroeconomic semi-equilibrium model for the Dutch economy (MESEM)

Abstract

This paper investigates the effects of taxation and government spending within a macroeconomic semi-equilibrium framework for the Netherlands. The model occupies a position in between general equilibrium models and empirical traditional macromodels: markets tend towards equilibrium in the long run, but do not always clear in the short term. Balanced budget reductions in taxes on wages and profits exert favourable effects on employment and growth. The relative impact depends on the specific government outlays and taxes which are cut back. In the long run, tax revenue decreases less than the amount of the initial tax reduction.