Crossing Mountains: The Effect of Competition on the Laffer Curve
AbstractRegarding states and state-like entities as producers and taxation as a price, this paper connects the thoroughly studied impacts of the market structures in microeconomics to the controversial Laffer curve, suggesting that the outcome of the “taxation market” depends also on competition. By studying the determinants for Property Tax revenue for the 308 Portuguese municipalities, a general model that successfully explains tax revenue is developed. Evidence is found for the existence of a two-peaked Laffer curve in the sample, and various tests indicate that competition impacts – shifting but also changing – the Laffer curve, causing more competitive municipalities to maximize revenue at lower tax rates – i.e. lower prices - than those in a more monopolistic setting.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 523.
Length: 34 pages
Date of creation: Jan 2014
Date of revision:
Laffer curve; Taxation; Market Structure; Competition; Municipalities; Portugal;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
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