Debt, seigniorage, and the Growth Laffer Curve in developing countries
Résumé
The endogenous growth literature established the existence of an inverted-U curve
between taxes and economic growth, namely a Growth Laffer Curve, but empirical evidence
on this relationship in developing countries is rather limited. Given that seigniorage
and public debt are also important means of financing public spending in these countries,
we take into account in this paper their respective impacts on growth, as they might
deform the existing relationship between taxes and growth. To this end, we develop a
growth model with public investment as the engine of perpetual growth, and look for
the effect of debt, tax and money financing on economic growth. We study in particular
the way fiscal and monetary policies deform the Growth Laffer Curve in developing countries.
An empirical section based on a panel of 100 developing countries over the period
1980–2010 provides both OLS-Fixed Effects and GMM-system estimations that support
our theoretical conclusions, namely the existence of Growth Laffer Curves indexed by
the levels of debt and of seigniorage.