71 English translation © 2012 M.E. Sharpe, Inc., from the Russian text © 2010 “Obshchestvo i ekonomika” and the authors. “Nalogi, tekhnologiia proizvodstva i ekonomicheskii rost,” Obshchestvo i ekonomika, 2011, no. 4–5, pp. 172–96. A publication of the International Association of the Academies of Sciences. Iuri Ananiashvili is a Doctor of Economic Sciences and professor in the Department of Econometrics of Ivane Javakhishvili Tbilisi State University; e-mail: iuri_ananiashvili@ yahoo.com. Vladimer Papava is a Doctor of Economic Sciences, professor, corresponding member of the National Academy of Sciences of Georgia, and chief research fellow at the Paata Gugushvili Institute of Economics; e-mail: papavavladimer@yahoo.com. Translated by James E. Walker. Problems of Economic Transition, vol. 54, no. 12, April 2012, pp. 71–91. © 2012 M.E. Sharpe, Inc. All rights reserved. ISSN 1061–1991/2012 $9.50 + 0.00. DOI 10.2753/PET1061-1991541205 IURI ANANIASHVILI AND VLADIMER PAPAVA Taxes, Production Technology, and Economic Growth The article examines two different approaches to estimating the effect of the tax burden on the amount of total output and budget revenues. The first approach is based on a transformation model, in which the main role is played by a produc- tion function with variable elasticity. The second approach uses a behavioral model, with a specific version of an entropy function. Both models make it possible to determine the so-called fiscal points corresponding to the maximum production effect and the budget’s maximum tax revenues. The conclusion is drawn that, of these points, only the points of the behavioral model correspond to the Laffer concept, since for points derived from the transformation model the amount of use of economic resources is exogenous, while for the points of the behavioral model this amount occurs endogenously. The results obtained are illustrated using existing data on the U.S. economy. The fact that the modern state and society could not exist without taxes needs no special proof. At the same time, it is recognized that taxation has an effect on consumption and savings, investment, supply and demand, pricing, the scale of markets, and so on. 1 In the final analysis, all of this directly or indirectly affects the amount of production and budget revenues. 05 Ananiashvili-Papava.indd 71 2/23/2012 9:31:40 AM