Feedback Effects and the Laffer Landscape

Abstract:     
This paper combines the dynamic scoring literature with Laffer curve analysis to reveal the relationship between feedback effects and the shape of the Laffer curve. A Neoclassical growth model with multiple government expenditures and revenues is used and the conditions under which a tax cut can be self-financing are explored. Steady state results indicate that fiscal regimes with a greater reliance on debt financing or lump-sum transfers are more likely to be self-financing than those with larger expenditures on government consumption and productivity-enhancing public capital.

Keywords: Laffer, dynamic scoring, growth, fiscal, debt

JEL Classifications: E1, H2, H3, H6

Working Paper Series