A concept that has been largely ignored in the economic literature is the price level elasticity of aggregate demand. The purpose of this article is to integrate this concept into supply-side economic theory and demonstrate the conditions under which decreased tax rates induce higher tax revenues. Within a standard aggregate demand, aggregate supply reduced form model, it is found that the relationship between tax rates and tax revenues depends on two factors: the tax rate elasticity of aggregate supply and the price level elasticity of aggregate demand. More specifically, it is found that a tax decrease that increases the aggregate supply of goods and services is more likely to also increase tax revenue when the price level elasticity of aggregate demand is greater. Alternatively, for a tax rate decrease to increase tax revenue, the tax rate elasticity of aggregate supply must be greater when the price level elasticity of aggregate demand is lower.

Supply-Side Economics and the Price Level Elasticity of Aggregate Demand:

This article, written in the first days of the Bush Administration, is part of what will no doubt be a flood of “end of term” assessments of the Reagan era. Much of this work, naturally enough, will be concerned with evaluating the economic record of that administration and discussing the economic legacy inherited by George Bush. This article, however, is a rather different endeavor; it is an attempt by two observers from across the Atlantic to explain the triumph in the United States of supply-side ideas.

‘Reaganomics’ and Supply-Side Economics: A British View

This paper discusses the new-right ideas underlying the victory and implementation of ‘Reaganomics’ and examines the economic record of the Reagan administration. Given the preeminence of supply-side economics in the USA in the 1980s, and the supply-side leanings of the Reagan government, attention is focused mainly upon supply-side ideas, policies and claims: although some assessment of monetarist propositions is also provided. In addition to the evaluation of new-right claims, however, a broader assessment of the Reagan administration's record is also undertaken which deals, inter alia, with inflation, growth, unemployment and the ‘twin deficits’. Within this evaluation the social impact of Reaganomics is highlighted as a counterpoint to the claimed economic successes of the Reagan years.

The new right and the US economy in the 1980s: an assessment of the economic record of the Reagan administration

Paradox among the Paradigms: A Comment on Eichner, Meltzer, Bowles and Co-Workers, and Miles

The post-World War II period in the US saw the emergence of what has been characterized as a Keynesian Social Democratic State or Keynesian Consensus.1 This Consensus, however, after reaching its zenith in the 1960s, proved to be fragile, and it was unable to survive the economic events of the following decade. Conservatives, of course, were not slow to lay the blame for the economic maladies of the US economy in the 1970s at the door of Keynesian interventionism, and the steady erosion of faith in the Keynesian Consensus was ultimately to be politically most significant for the Democrats as it decisively eroded their support since they were the party whose agenda was most closely associated with the Consensus.

The Myths and Realities of Conservative Economic Policy-Making in the US

In one respect "supply-side economics" has become like "The Theory of Relativity": a phrase often dropped at cocktail parties without a hint of the deeper implications. So a critical evaluation of Reagan's economic policy should start by first defining supply-side economics. Three basic points are worth emphasizing: * Supply-side economics did not start out as a theory of taxes. Instead it originated as a theory of how countries can achieve stable prices in an integrated global economy. Supply-side economics is a multidimensional theory.

Marc A. Miles

Papers

An Evaluation of Reagan’s Economic Policies from an Incentivist (Supply-Side) Perspective