Supply-side economics and economic level

This article analyses the impact of different types of taxes on economic growth. Taking into account inter-temporal substitution we develop an economic model originally stemming from the Ramsey model. Using the dynamic optimization we search the balanced trajectories of consumption and capital stock to the new steady state after tax adjustment. The results show the negative impact of tax on capital on economic growth. The impact of consumption tax and payroll tax depends on the concrete parameters of the utility function of the representative agent, exactly on agent's evaluation of consumption and leisure. The influence of low taxes on economic growth may be positive, while the influence of high taxes may become negative. The analysis shows that there might be the identical economic growth for two different tax levels.

Keywords: supply side economics, Ramsey model, working time curve, steady states curve