FRIEDMAN TAX CUTS VS. BUCHANAN DEFICIT REDUCTION AS THE BEST WAY OF CONSTRAINING GOVERNMENT

Does a tax cut reduce government spending by reducing government revenue or does it increase government spending by lowering the perceived price of government services? Some economists, including Milton Friedman, take the former position, while others, including James Buchanan, think the latter is true. The question seems to resist an empirical answer, with some studies supporting Friedman's view and others supporting Buchanan's. In this paper, each position is shown to be a special case in a simple model of taxation and deficit determination.