Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 682: On Analytics of the Dynamic Laffer Curve

Jonas Agell () and Mats Persson ()
Additional contact information
Jonas Agell: Department of Economics, Postal: Uppsala University, Sweden
Mats Persson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden

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".

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

JEL-codes: E62; O41

33 pages, April 18, 2000

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