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Implications of Transitory and Permanent Changes in Tax Rates for Poland

Janusz Jabłonowski

Gospodarka Narodowa, 2018, issue 2, 73-97

Abstract: This article provides an analysis of the fiscal channel that assumes balancing between raised labour, capital and consumption tax rates and government consumption, calibrated for Polish data. The study is based on neoclassical, education-based semi-endogenous and exogenous growth models for a small closed economy, featuring a direct household utility from government consumption, extended to include monopolistic competition. Two perspectives are considered: 1) the transitory effects of the government consumption impulse on private consumption and 2) permanent changes in tax rates towards the top of the Laffer curve. The results of the transitory impulse confirm the crowding-in of private consumption in a fully competitive economy, but not for monopolistic competition. Permanent changes in tax rates, analysed from the perspective of the Laffer curves, show some room for higher tax revenues. Shifting the tax rates to the top of the Laffer curves improves tax revenues, but it significantly deteriorates key economic aggregates.

Keywords: Laffer curve; government spending; distortionary taxation; monopolistic competition; human capital; crowding in (search for similar items in EconPapers)
JEL-codes: E32 E62 H20 H21 H52 H60 J24 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:sgh:gosnar:y:2018:i:2:p:73-97