Do Tax Cuts Boost Government Spending?

Now, that's a counter-intuitive idea. What we now know is that there is no relationship between cutting taxes and reducing spending - at least according to Bill Niskanen. Niskanen worked in the Reagan White House and now chairs the Cato Institute. Sebastian Mallaby explains:

Niskanen has crunched the numbers between 1981 and 2005, testing for a relationship between tax cuts and government spending, and controlling for levels of unemployment, since these affect spending and taxes independently. Niskanen's result punctures his own party's dogma. Tax cuts are associated with increases in government spending. The best strategy for forcing cuts in government is actually to raise taxes.

How can this be? Mallaby suggests an answer:

Maybe cutting taxes before cutting spending makes government feel cheap: People are still getting all the services they want, but they are paying less for them. Maybe this illusory cheapening has a perverse effect: Now that government feels like a bargain, people want more of it.

And conservatives then provide rationales for giving it to them. Welcome to Big Insolvent Government Conservatism, the nightmare on Pennsylvania Avenue.