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

See all articles by Iuri Ananiashvili

Iuri Ananiashvili

Ivane Javakhishvili Tbilisi State University - Department of Econometrics

Vladimer Papava

Ivane Javakhishvili Tbilisi State University

Date Written: September 9, 2013

Abstract

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

Ananiashvili, Iuri and Papava, Vladimer, Equilibrium and Optimal Tax Rates in the Models of Aggregate Demand and Aggregate Supply (Laffer-Keynesian Synthesis) (September 9, 2013). Bulletin of the Georgian National Academy of Sciences, Vol. 7, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=2322865 or http://dx.doi.org/10.2139/ssrn.2322865

Iuri Ananiashvili

Ivane Javakhishvili Tbilisi State University - Department of Econometrics ( email )

1, Chavchavdze Ave
Building I
Tbilisi, 0218
Georgia

Vladimer Papava (Contact Author)

Ivane Javakhishvili Tbilisi State University ( email )

1, Ilia Tchavtchavadze avenue
Tbilisi, Tbilisi 0179
Georgia
+995 32 222-0241 (Phone)
+995 32 222-5107 (Fax)

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