The level of crowding out associated with a tax cut will be larger if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Question

Quizplus · Accepted Answer

Crowding out is typically associated with demand-side effects, where increased government borrowing leads to higher interest rates, reducing private investment. Supply-side effects, such as increased productivity from a tax cut, can potentially offset crowding out by boosting economic growth.

The Level of Crowding Out Associated with a Tax Cut