Supply-side economics with AS-AD in Ramsey dynamic general equilibrium

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F23%3A00576272" target="_blank" >RIV/67985998:_____/23:00576272 - isvavai.cz</a>

Result on the web

<a href="https://doi.org/10.1016/j.eap.2023.08.020" target="_blank" >https://doi.org/10.1016/j.eap.2023.08.020</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1016/j.eap.2023.08.020" target="_blank" >10.1016/j.eap.2023.08.020</a>

Result language

angličtina

Original language name

Supply-side economics with AS-AD in Ramsey dynamic general equilibrium

Original language description

The Ramsey dynamic general equilibrium (RDGE) model has been applied broadly within mainstream macroeconomic analysis. While the labor market of the RDGE model has long been developed, any consensus on the goods market has remained elusive. This has made supply-side policy analysis within it difficult since it is founded upon the premise of aggregate supply (AS) featuring more prominently than aggregate demand (AD). Specifying a relative price of output that makes the goods market consistent with the recursive structure of the RDGE paradigm, the paper then applies AS-AD quantitatively to study productivity increases and income tax rate decreases that have been a centerpiece in supply-side economics. The paper contributes how both a productivity increase and a capital income tax rate decrease cause a net shift out of AS relative to AD that lowers the relative price of output. It shows how productivity increases and tax rate reductions quantitatively increase macroeconomic variables. The increase in economic activity remains proportional to the percentage increase in productivity, giving rise to our introduction of the concept of a productivity multiplier. Tax rate reductions cause increased economic activity at a decreasing rate as the level of the tax rate decreases. The paper shows the sense in which capital income tax rate reductions quantitatively have larger magnitude effects on output, consumption, investment, and capital wealth, while labor income tax rate reductions have larger magnitude effects on employment. Tax revenue implications are also presented with the first Laffer curves linked to the RDGE AS-AD analysis. Limitations, extensions and policy applications are suggested.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

—

OECD FORD branch

50202 - Applied Economics, Econometrics

Project

—

Continuities

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year

2023

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Economic Analysis and Policy

ISSN

0313-5926

e-ISSN

0313-5926

Volume of the periodical

80

Issue of the periodical within the volume

December

Country of publishing house

NL - THE KINGDOM OF THE NETHERLANDS

Number of pages

27

Pages from-to

505-531

UT code for WoS article

001079833100001

EID of the result in the Scopus database

2-s2.0-85171372196