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How far are we from the slippery slope? The Laffer curve revisited

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  • Trabandt, Mathias
  • Uhlig, Harald

Abstract

We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring ”constant Frisch elasticity” (CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation. JEL Classification: E0, E60, H0

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Paper provided by European Central Bank in its series Working Paper Series with number 1174.

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Date of creation: Apr 2010
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Handle: RePEc:ecb:ecbwps:20101174

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Keywords: dynamic scoring; incentives; Laffer curve; US and EU-14 economy;

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Blog mentions

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  1. A new look at the Laffer curve
    by Economic Logician in Economic Logic on 2009-10-20 14:35:00
  2. The sum of all right-wing assumptions
    by Noah in Noahpinion on 2011-07-12 13:30:00
  3. Looking for a Laffer curve
    by chris dillow in Stumbling and Mumbling on 2006-07-17 11:27:55
  4. Ridurre le tasse si deve
    by Renzo Orsi, Davide Raggi e Francesco Turrino in La Voce on 2013-12-13 07:17:18
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