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 language | English |
---|---|
Pages (from-to) | 40-52 |
Number of pages | 13 |
Journal | International Review of Economics and Finance |
Volume | 41 |
DOIs | |
Publication status | Published - 2016 Jan 1 |
Externally published | Yes |
Keywords
- Debt management
- Dynamic Laffer curve
- Dynamic scoring
- Population
- Taxation
ASJC Scopus subject areas
- Finance
- Economics and Econometrics