Dynamic Laffer curves, population growth and public debt overhangs

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4 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)40-52
Number of pages13
JournalInternational Review of Economics and Finance
Volume41
DOIs
Publication statusPublished - 2016 Jan 1
Externally publishedYes

Keywords

  • Debt management
  • Dynamic Laffer curve
  • Dynamic scoring
  • Population
  • Taxation

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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