On the analytics of the dynamic Laffer curve

In this paper, we analyze government budget balance within a simple model o f endogenous growth. For the AK model, simple analytical conditions for a t ax cut to be self-financing can be derived. The critical variable is not th e tax rate per se, but the "transfer-adjusted" tax rate. We discuss some co nceptual issues in dynamic revenue analysis, and we explain why previous st udies have arrived at seemingly contradictory results. Finally, we perform an empirical study of the transfer-adjusted tax rates of the OECD countries to see which country has the highest potential for fiscal improvements; it turns out that only a few countries have any potential for such "dynamic s coring". (C) 2001 Elsevier Science B.V. All rights reserved.