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Improving tax revenues in the emerging markets: A Laffer curve analysis

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  • Sargam Gupta
  • Snigdha Kalra

Abstract

Emerging market and developing economies (EMDEs) can significantly improve their tax‐to‐GDP ratios by expanding the tax base and strengthening institutional quality. This paper develops a neoclassical growth model with heterogeneous agents‐ Ricardian and non‐Ricardian households‐to examine fiscal capacity using a Laffer curve framework. It highlights two key constraints in EMDEs: a large untaxed population‐including exempt and informally employed individuals, and institutional weakness reflected in tax evasion, poor audits, and weak compliance norms. Non‐Ricardians are untaxed; Ricardians may evade or pay taxes. Results show that raising tax rates alone is ineffective; broader compliance, limited exemptions, and institutional reforms are essential.

Suggested Citation

  • Sargam Gupta & Snigdha Kalra, 2026. "Improving tax revenues in the emerging markets: A Laffer curve analysis," Economic Inquiry, Western Economic Association International, vol. 64(4), pages 1458-1492, October.
    • Handle: RePEc:bla:ecinqu:v:64:y:2026:i:4:p:1458-1492
    DOI: 10.1111/ecin.70069
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