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Testing the Validity of the Laffer-Curve Hypothesis

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  • Basil A. Dalamagas

Abstract

In a simple macromodel of endogenous growth for 13 OECD countries, the effects of deficit financed tax cuts on output and tax revenue are examined and certain widely assumed properties of the Laffer curve are shown to hold for a portion only of the sample countries. The shape of the Laffer curve is shown to be closely associated with both the theoretical underpinnings of the crowding out hypothesis and the literature on the disincentive effects of taxation; i.e., a permanent reduction in average tax rate is strong enough (insufficient) to allow the government debt to be paid off in the long run without the need for subsequent tax increases mainly in highly taxed economies (economies with crowding out performance).

Suggested Citation

  • Basil A. Dalamagas, 1998. "Testing the Validity of the Laffer-Curve Hypothesis," Annals of Economics and Statistics, GENES, issue 52, pages 77-102.
    • Handle: RePEc:adr:anecst:y:1998:i:52:p:77-102
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    File URL: http://www.jstor.org/stable/20076152
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    Cited by:

    1. E. EHRHART & Alexandru MINEA & Patrick VILLIEU, 2009. "Deficits, Seignorage and the Growth Laffer Curve in Developing Countries," LEO Working Papers / DR LEO 118, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Şen, Hüseyin & Bulut-Çevik, Zeynep Burcu & Kaya, Ayşe, 2017. "The Khaldun-Laffer Curve Revisited: A Personal Income Tax-Based Analysis for Turkey," MPRA Paper 78850, University Library of Munich, Germany, revised 27 Apr 2017.
    3. Alexandru Minea & Patrick Villieu, 2009. "Impôt, déficit et croissance économique : un réexamen de la courbe de Laffer," Revue d'économie politique, Dalloz, vol. 119(4), pages 653-675.
    4. Hüseyin ŞEN & Zeynep Burcu BULUT-ÇEVIK, 2021. "The Revenue-Maximizing Corporate Income Tax Rate for Turkey," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 122-142, December.

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