Macroeconomic Model of Laffer-Keynesian Synthesis
Problems of economic transition
02 Ananiashvili-Papava.indd 22 2/23/2012 10:12:53 AM function of taxes. The problem of taxes is also seen one-sidedly by supply-side economics, in which the effect of the tax rate on aggregate supply is brought to the fore. The role of taxes can be fully explained, and the one-sided nature of these two theories can be overcome through a synthesis of supply-side economics and Keynesianism, which was first suggested by one of the present authors. 1 The model presented below is a further
... a further development of this idea of a Laffer-Keynesian synthesis. It is based on a macroeconomic equilibrium model that consists of aggregate demand and aggregate supply functions. However, in contrast to the standard models of aggregate demand and aggregate supply, these functions are analyzed not in the coordinates of a plane on the axes of which values of the price level P and output Y are shown, but on a plane in which the vertical axis corresponds to the average tax rate t; and the horizontal axis, to output Y. In this model, the price level, together with the rest of the factors that affect aggregate demand and aggregate supply, is exogenously given.