Raising taxes to balance the budget: How effects on output and labor supply complicate the

The United States and many European countries currently have large budget deficits and significant national debt.  Many of these countries are seeking to restore fiscal discipline by cutting spending, raising taxes, or both.  I investigate what would occur if the United States or one of seven European countries (France, Germany, Italy, the United Kingdom, Greece, Spain, and Sweden) attempted to balance its budget by raising taxes without cutting spending.  To do this, I develop a dynamic general equilibrium model to analyze how changes in tax rates affect output and labor supply.  I find that if government spending is not reduced, only Sweden, with its small deficit, can balance its budget in one year without suffering serious consequences.  I examine additional budget scenarios in the case of the United States and plot several Laffer Curves.  Finally, I calculate the tax rate increases necessary for the United States to achieve a balanced budget in the long run.