Taxation and laffer effects on employment and growth

Professor Francesco Forte made major applications of the Laffer Curve in Public Finance.  This paper examines and applies empirical test of the its interactions with short and long term fiscal policies on GDP growth and on other relevant macroeconomic variables. The paper explores some dangerous short and long term ambiguities/illusions of fiscal policies derive from the belief that Laffer effects may arise from deficit financed tax cuts able to stimulate aggregate demand. The origin of such expected effects can be brought back to Keynes (1930), who argued that a deficit financed tax cut increases national income via the increased aggregate demand: the budget would, thus, be balanced at a higher level of national income and at increased employment, with a positive influence on both growth rates and welfare. Some dangerous short and long term ambiguities/illusions of fiscal policies derive from the belief that Laffer effects may arise from deficit financed tax cuts able to stimulate aggregate demand. The origin of such expected effects can be brought back to Keynes (1930), who argued that a deficit financed tax cut increases national income via the increased aggregate demand: the budget would, thus, be balanced at a higher level of national income and at increased employment, with a positive influence on both growth rates and welfare. Moreover, given that Laffer effects on revenues significantly differs from Laffer effects on revenues/GDP ratio, both in the long and in the short terms, fiscal illusion prevents a rational perception of the effectiveness of  fiscal measures. The ambiguity of Laffer effect led to an important series of studies of Francesco Forte, designed to disclose and empirically test its interactions with short and long term fiscal policies on GDP growth and on other relevant macroeconomic variables. In this paper, we discuss under the Laffer perspective some of Francesco Forte studies related to fiscal policies effects on labour market and GDP growth.