On the Analytics of the Dynamic Laffer Curve

28 Pages Posted: 26 Jan 2001

See all articles by Jonas Agell

Jonas Agell

Stockholm University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Mats Persson

Stockholm University; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2000

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 improvements; it turns out that only a few countries have any potential for such "dynamic scoring".

Keywords: Laffer effects, intertemporal models, dynamic scoring, growth models

JEL Classification: E62, O41

Suggested Citation

Agell, Jonas and Persson, Mats, On the Analytics of the Dynamic Laffer Curve (December 2000). CESifo Working Paper Series No. 383. Available at SSRN: https://ssrn.com/abstract=257795

Jonas Agell (Contact Author)

Stockholm University - Department of Economics ( email )

Universitetsvägen 10 A
House A, floor 4 and 7
Frescati, Stockholm
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Mats Persson

Stockholm University ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://www.cesifo.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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