Earlier or Later: A General Equilibrium Analysisof Bringing Forward an AlreadyAnnounced Tax Reform

The German Income Tax Reform 2000, which announced a reduction in income tax rates to beimplemented in a series of three stages, was welcomed by the public as a step towards unleashinglurking growth potentials. Nonetheless, in the course of the year 2001 a dispute arose, centeringaround the question, whether or not the later stages of the German Income Tax Reform should bebrought forward. The present paper assesses the welfare and macroeconomic consequences of theGerman Income Tax Reform in the scope of a simpli¯ed DGE model of the Auerbach-Kotliko® typeand deals explicitly with the issue of bringing forward an already announced tax reform. Besidesevaluating the considered ¯scal policy options in terms of their (social) welfare implications we touchon the political economy aspects of implementing a tax reform....