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On Analytics of the Dynamic Laffer Curve

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  • Agell, Jonas

    (Department of Economics)

  • Persson, Mats

    (Institute for International Economic Studies, Stockholm University)

Abstract

In this paper, we analyze government budget balance within a simple model of endogenous growth. For the AK model, simple analytical conditions for a tax cut to be self-financing can be derived. The critical variable is not the tax rate per se, but the "transfer-adjusted tax rate". We discuss some conceptual issues in dynamic revenue analysis, and we explain why previous studies have arrived at seemingly contradictory results. Finally, we perform an empirical study of the transfer-adjusted tax rates of the OECD countries to see which country has the highest potential for fiscal improve-ments; it turns out that only a few countries have any potential for such "dynamic scoring".

Suggested Citation

  • Agell, Jonas & Persson, Mats, 2000. "On Analytics of the Dynamic Laffer Curve," Seminar Papers 682, Stockholm University, Institute for International Economic Studies.
    • Handle: RePEc:hhs:iiessp:0682
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    References listed on IDEAS

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    More about this item

    Keywords

    Laffer effects; intertemporal models; dynamic scoring; growth models;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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