Equilibrium and Optimal Tax Rates in the Models of Aggregate Demand and Aggregate Supply (Laffer-Keynesian Synthesis)
Bulletin of the Georgian National Academy of Sciences, Vol. 7, No. 2, 2013
13 Pages Posted: 10 Sep 2013
Date Written: September 9, 2013
The paper presents a macroeconomic equilibrium model in which aggregate demand and aggregate supply are considered not in relation to the price level, as is traditionally done, but in terms of functions dependent on the average tax rate. Based on an analysis of the model, it is shown that when the government tries to maintain the equilibrium average tax rate at a fixed level, the optimal tax rate becomes dependent on the price level, and an appropriate change in aggregate demand may lead to approximation of the optimal rate to the equilibrium rate.
Keywords: Keynesian model of aggregate demand, model of aggregate supply, macroeconomic equilibrium, Laffer-Keynesian synthesis, equilibrium average tax rate, optimal tax rate
JEL Classification: E62, H21, H61
Suggested Citation: Suggested Citation