The results are reported in Table 1. In the three scenarios
where the tax cuts are financed in the long run by
increases in income taxes, the long-term effects are
generally negative. In the Ramsey model and the closed
economy overlapping generations (OLG) model, GDP (and
GNP) falls significantly. In the open economy OLG model,
GDP rises slightly, but GNP falls by even more than in the
other models. The chain of events creating this outcome
is that the tax cuts reduce national saving and hence
increase capital inflows. The inflow, in conjunction with
increased labor supply, is sufficient to slightly raise (by
0.2 percent) the output produced on American soil. The
capital inflows, however, must eventually be repaid and
doing so reduces national income (GNP) even though
domestic production rises.