The Dynamic Laffer Curve

Abstract

The renowned curve of the economist Arthur Laffer has been for years an illustrative and easy-to-understand tool that has been used by academics, politicians and tax experts of all branches to justify fiscal policies. However, this curve is not only insufficient, but is drawn on the basis of a static view of the economy and therefore not useful at all. Furthermore, diagnosing reality under the reasoning of the Laffer curve leads to the use of other disastrous tools such as the
fiscal barometer used in Spain and in other countries. This article describes what the Laffer curve does and does not say. But more importantly, given its insufficiency, it is concluded that under a dynamic view of the economy, the curve could never be drawn, because there is no way to add the variables time and entrepreneurial creativity.