Fève, Patrick, Matheron, Julien and Sahuc, Jean-Guillaume (2017) The Horizontally s-shaped laffer curve. Journal of the European Economic Association. (In Press)
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In a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents, the properties of the Laffer curve depend on whether debt or transfers are adjusted to balance the government budget constraint. The Laffer curve conditional on public debt is horizontally S-shaped. Two opposing forces explain this result. First, when government wealth increases, the fiscal burden declines, calling for lower tax rates. Second, because the interest rate decreases when government wealth increases, fiscal revenues may also decline, calling for higher taxes. For sufficiently negative government debt, the second force dominates, leading to the odd shape of the Laffer curve conditional on debt.
|Uncontrolled Keywords:||Laffer Curve, Incomplete Markets, Labor Supply, Public Debt|
|JEL codes:||E00 - General
E60 - General
|Subjects:||B- ECONOMIE ET FINANCE|
|Divisions:||Toulouse School of Economics - TSE|
|Date Deposited:||20 Apr 2017 08:27|
|Last Modified:||20 Apr 2017 08:27|
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The Horizontally s-shaped laffer curve. (deposited 17 Mar 2017 15:03)
- The Horizontally s-shaped laffer curve. (deposited 20 Apr 2017 08:27) [Currently Displayed]
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