Foundations of Supply-Side Economics - 1st Edition - ISBN: 9780121588205, 9781483271576

Foundations of Supply-Side Economics

1st Edition

Theory and Evidence

Authors: Victor A. Canto Douglas H. Joines Arthur B. Laffer
eBook ISBN: 9781483271576
Imprint: Academic Press
Published Date: 28th January 1983
Page Count: 300
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Foundations of Supply-Side Economics: Theory and Evidence is composed of a series of papers containing both theoretical and empirical analyses of a set of issues in government fiscal policy.

The type of analysis employed in the book is standard neoclassical economics, and this analysis is used to study the macroeconomic incentive effects of taxation. The book contains contributions that cover the analysis of the effects of taxes imposed purely for generating revenues; the process of capital formation; and an attempt to integrate supply-side analysis into a traditional macroeconomic framework. Reports on the empirical evidence on taxation and economic activity and the estimation of a small macroeconomic model of the United States for the postwar period; description of a method of calculating effective marginal tax rates on factor incomes using available U.S. data; and the estimation of the effect of fiscal policy on private investment in plant and equipment are presented as well.

Economists will find the book highly insightful.

Table of Contents



Chapter 1 Tax Rates, Factor Employment, Market Production, And Welfare

1. The Model

2. Taxation and Market Activity

3. Taxation and Revenue

4. The Tax Structure, Market Output, and Welfare

5. The Empirical Relevance of the Prohibitive Range

6. Some Numerical Examples

7. Conclusion


Chapter 2 Taxation In A Closed Economy Intertemporal Model With A Variable Supply Of Labor To The Market Sector


1. The Model

2. The Government Sector

3. Long-Run Effects of Taxes

4. A Special Case

5. Welfare Ranking of the Tax Policies

6. Concluding Remarks


Chapter 3 A Neoclassical Model Of Fiscal Policy, Employment, And Capital Accumulation

1. The Model

2. Comparative Statics of the Individual's Maximization Problem

3. Government Fiscal Policies

4. General Equilibrium

5. Summary

Appendix A. Evaluation of Changes in h*1+1

Appendix B. Further Assumptions Behind the Theoretical Model and Resulting Implications Concerning the Existence of Bequests

Appendix C. Steady-State Effects of Taxation on Factor Employment in a Cobb-Douglas World


Chapter 4 The Revenue Effects Of The Kennedy Tax Cuts

1. A Simple Model

2. Historical Antecedents of the Laffer Curve

3. Existing Empirical Evidence on Tax Rates, Economic Activity, and Tax Revenues

4. Time-Series Estimates

5. Effects on Other Economic Variables

6. Tranfer Function Estimates

7. Conclusions



Chapter 5 Fiscal Policy And The Labor Market

1. Introduction

2. The Supply of Labor

3. The Demand for Labor

4. Empirical Implementation of the Model

5. Simulation of the Model

6. Summary



Chapter 6 Εstimates Of Effective Marginal Tax Rates On Factor Incomes

1. Introduction

2. Some Caveats

3. The Nature of Available Data

4. A Hypothetical Tax Structure

5. Relation of Hypothetical Tax Structure to Available Data

6. Some Remaining Issues

7. Alternative Tax Rate Series

8. Behavior of Tax Rates Over Time

9. Uses of Components of Tax Rates

10. Summary


Chapter 7 Government Fiscal Policy And Private Capital Formation—Some Aggregate Time-Series Estimates

1. Introduction

2. The Hypotheses to Be Tested

3. Methodology

4. Identification, Estimation, and Diagnostic Checks of Transfer Function Models

5. Choice of a Government Spending Variable

6. The Data

7. Univariate Time-Series Models for Exogenous Variables

8. Transfer Function Models for INVS

9. Transfer Function Models for INVE

10. Comparison of Results for INVS and INVE

11. Results for Selected Subperiods

12. Conclusion



Chapter 8 What Does A Tax Cut Do?

1. Introduction

2. Econometric Specifications of the Model

3. Some Econometric Issues

4. An Empirical Model of the U.S. Economy

5. Discussion of the Estimates

6. Policy Analysis



Chapter 9 Persistent Growth Rate Differentials Among States In A National Economy With Factor Mobility

1. The Model

2. Some Theoretical and Empirical Caveats

3. Empirical Evidence: The States' Performance

4. Summary and Conclusions

Appendix A. Data Sources

Appendix B. Derivation of States' Personal Income

Appendix C. The States' Performance Relative to Their Region: The Seemingly Unrelated Regression Estimates


Chapter 10 The Missing Equation: The Wedge Model Alternative


1. The IS-LM Framework

2. A More General Model

3. The IS Curve Revisited

4. The Effects of Government Expenditures

5. The Effects of Nonneutral Taxes

6. Deficit Financing: The Money and Bond Markets

7. Concluding Remarks




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© Academic Press 1983
Academic Press
eBook ISBN:

About the Author

Victor A. Canto

Dr. Victor Antonio Canto, Ph.D., is a Principal and the Chief Investment Officer at Allison Street Advisors. Previously Dr. Canto was a Managing Director at Cadinha Institutional Services; the Director, Chief Investment Officer, and Portfolio Manager at Calport Asset Management; and the President and Director of Research at A. B. Laffer, V. A. Canto & Associates. He was a tenured Associate Professor of Finance and Business Economics at the University of Southern California U.S.A. from 1983 until 1985. Prior to that, Dr. Canto was an Assistant Professor of Finance and Business Economics at the University of Southern California from 1977 to 1983. He has served as a visiting Professor at the Universidad Central del Este in the Dominican Republic. Dr. Canto was a visiting Professor of Economics at the University of Los Angeles during the winter of 1987. During 1980, he was a Consultant to the Financial Council of Puerto Rico and during 1977 Dr. Canto served as an Advisor to the Economic Studies Division of the Dominican Republic’s Central Bank. In 1975, he was a Technical Advisor to the Finance Minister of the Dominican Republic. Dr. Canto is the Chairman and Founder at La Jolla Economics, Inc. He has authored, edited, or co-edited a number of books, including the landmark Foundations of Supply-Side Economics; Monetary Policy, Taxation, and International Investment Supply; Supply-Side Portfolio Strategies; and Currency Substitution: Theory and Evidence from Latin America. Dr. Canto is the recipient of the Supremo de Plata awarded by the Dominican Republic JC to the outstanding Young Man of 1983 and the recipient of the University of Southern California University Scholar award. His scholarly articles have appeared in leading economic journals, including Economic Inquiry, Journal of Macroeconomics, The International Journal, Journal of Business and Economics Statistics, The Southern Economic Journal, Applied Economics, Weltwirstchaftliches Archiv, The CATO Journal, Public Finance, and The Journal of International Money and Finance. In addition to his principal fields of interest, International Economics, Public Finance, and Macroeconomics, Dr. Canto’s work has been published in the Wall Street Journal and the Investor's Business Daily, authored articles on energy markets for the Public Utilities Fortnightly, and the Oil and Gas Journal, as well as a series of articles on portfolio strategy for the Financial Analysts Journal. He is the contributing author to The New Palgrave Dictionary of Money and Finance and contributed Exotic Currencies to it, published by MacMillan Press Limited in 1992. Dr. Canto is a registered investment adviser with the State of California, located in La Jolla, California. He received his doctorate in Economics in 1977 and a Master of Arts degree in Economics in 1974 from the University of Chicago and his Bachelor of Science degree in Civil Engineering from the Massachusetts Institute of Technology in 1972.

Affiliations and Expertise

La Jolla Economics, La Jolla, CA, USA

Douglas H. Joines

Arthur B. Laffer

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