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Endogenous growth and the dynamic Laffer curve

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  • Basil Dalamagas

Abstract

Advocates of supply-side economics contend that at least some of the economies are on the negatively sloped portion of the well-publicized Laffer curve, so that a lowering of tax rates will increase tax revenue and, thereby, reduce fiscal deficits in the long run. The purpose of this paper is to provide a simple but fundamentally correct framework — in the context of a convex model of endogenous growth — within which this contention may be analysed. The central finding is that, in the Group of Seven (G7), the issue of the response of deficits to tax rate changes cannot be resolved unless the crowding-out and crowding-in aspects of government intervention are taken into account.

Suggested Citation

  • Basil Dalamagas, 1998. "Endogenous growth and the dynamic Laffer curve," Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 63-75.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:1:p:63-75
    DOI: 10.1080/000368498326155
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    1. Alexandra Ferreira‐Lopes & Luís Filipe Martins & Ruben Espanhol, 2020. "The relationship between tax rates and tax revenues in eurozone member countries ‐ exploring the Laffer curve," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 121-145, April.
    2. repec:thr:techub:10029:y:2022:i:1:p:271-284 is not listed on IDEAS
    3. Kostantinos J. Liapis & Evangelos D. Politis & Dimitra Ntertsou & Eleftherios I. Thalassinos, 2020. "Investigating the Relationship between Tax Revenues and Tax Ratios: An Empirical Research for Selected OECD Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 215-229.
    4. Tsuchiya, Yoichi, 2016. "Dynamic Laffer curves, population growth and public debt overhangs," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 40-52.
    5. F Guedes de Oliveira & L Costa, 2015. "The VAT Laffer Curve and the Business Cycle in the EU27: An Empirical Approach," Economic Issues Journal Articles, Economic Issues, vol. 20(2), pages 29-43, September.
    6. Dimitra Ntertsou & Konstantinos Liapis, 2022. "Investigating the Relationship between Tax Rates and Tax Revenues in the Euro Area: The Effect of the Shadow Economy," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 49-62.
    7. Aka, F.B. & Decaluwe, B., 1999. "Causality and Comovement Between Tax Rate and Budget Deficits: Further Evidence from Developing Countries," Papers 9911, Laval - Recherche en Politique Economique.
    8. Francisca Guedes de Oliveira & Leonardo Costa, 2013. "The Vat Laffer Curve And The Business Cycle," Working Papers de Economia (Economics Working Papers) 02, Católica Porto Business School, Universidade Católica Portuguesa.
    9. Dennis Ridley & Cartreal Davison, 2022. "Optimal Tax Rate for Maximal Revenue Generation," Technium Social Sciences Journal, Technium Science, vol. 29(1), pages 271-284, March.

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