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The Laffer curve revisited

  • Trabandt, Mathias
  • Uhlig, Harald

Laffer curves for the US, the EU-14 and individual European countries are compared, using a neoclassical growth model featuring “constant Frisch elasticity” (CFE) preferences. New tax rate data is provided. The US can maximally increase tax revenues by 30% with labor taxes and 6% with capital taxes. We obtain 8% and 1% for the EU-14. There, 54% of a labor tax cut and 79% of a capital tax cut are self-financing. The consumption tax Laffer curve does not peak. Endogenous growth and human capital accumulation affect the results quantitatively. Household heterogeneity may not be important, while transition matters greatly.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 4 ()
Pages: 305-327

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Handle: RePEc:eee:moneco:v:58:y:2011:i:4:p:305-327
DOI: 10.1016/j.jmoneco.2011.07.003
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