Dynamic Laffer curves, population growth and public debt overhangs

Yoichi Tsuchiya

International Review of Economics & Finance, 2016, vol. 41, issue C, 40-52

Abstract: This paper extends the Ireland (1994) model to incorporate population growth and examines a dynamic effect of a tax reduction on a long-run government budget. We find evidence suggesting that the dynamic effect of a tax cut improves the government budget situation in the long-run. Our numerical analysis suggests that a population growth rate consistent with the U.S. economy has positive effects on a long-run government budget. It is likely that low population growth leads to the deterioration of a long-run government budget. However, dynamic Laffer curves fail to arise incorporating a moderate initial debt level into the model. Furthermore, a public debt overhangs experiment casts doubt on the dynamic Laffer curves.

Keywords: Dynamic Laffer curve; Dynamic scoring; Taxation; Population; Debt management (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 O41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:41:y:2016:i:c:p:40-52

DOI: 10.1016/j.iref.2015.10.001

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