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Dynamic Laffer curves

Novales Cinca, Alfonso and Ruiz Andújar, Jesús (2001) Dynamic Laffer curves. [Working Paper or Technical Report]

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Abstract

Se discute la posibilidad de cambios en la política fiscal que mejoren el bienestar en las economías reales, en un modelo de crecimiento endógeno con acumulación de capital humano.
Abstract
In an endogenous growth model with human capital accumulation, we discuss the possibility of welfare improving changes on the 1scal policy stance in some actual economies. First, we characterize the extent to which the initial fall in revenues produced by a permanent tax cut can be compensated by an increase in the tax base, due to a dynamic La#er curve e#ect, showing that there is, in fact, a non-trivial margin for substituting debt for taxes on labor and capital income. Second, we show that the largest feasible reduction in labor income tax rates may easily produce a higher welfare gain than the largest feasible reduction in capital income tax rates.
Two quali1cations: (a) feasible tax cuts exist only for a relatively high elasticity of intertemporal substitution of consumption, and (b) the preference for the largest feasible tax cut on labor income rather than that on capital income reverses for a low appreciation for leisure, relative to consumption, in the preferences of the representative agent.

Item Type:Working Paper or Technical Report
Additional Information:JEL classi"cation: E62; O41; H30
Uncontrolled Keywords:Política fiscal, Economías reales, Crecimiento endógeno, Acumulación del capital humano,
Subjects:UNSPECIFIED
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2001
Number:06
ID Code:6790
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Deposited On:30 Nov 2007
Last Modified:06 Feb 2014 07:51

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