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Does the Laffer curve exist? A review of the theoretical and applied literature, with special focus on the US and Spain

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  • Jos? Torres Rem?rez
  • Eduardo G?mez Melero

Abstract

The Laffer Curve, which illustrates the relationship between tax rates and fiscal revenue, has been a central theme in economic theory and fiscal policy since its formulation. This article provides a comprehensive review of the literature on the Laffer Curve, with a particular focus on the elasticity of the tax base as a tool for its analysis. The elasticity of the tax base refers to the sensitivity of fiscal revenue to changes in tax rates and is crucial for understanding how variations in taxation impact economic behavior and, consequently, public revenue. The study compares empirical evidence from the United States and Spain to offer a detailed perspective on how these economies respond to changes in tax rates. Through a comparative analysis, it highlights similarities and differences in the response of the tax base and the efficiency of tax collection. This article provides an integrated view of the applicability and limitations of the Laffer Curve in different national contexts, offering practical implications for policymakers and contributing to the debate on optimizing tax revenue.

Suggested Citation

  • Jos? Torres Rem?rez & Eduardo G?mez Melero, 2025. "Does the Laffer curve exist? A review of the theoretical and applied literature, with special focus on the US and Spain," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2025(1), pages 7-31.
    • Handle: RePEc:fan:epepep:v:html10.3280/ep2025-001001
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    References listed on IDEAS

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    1. Werdt, Clive, 2015. "The elasticity of taxable income for Germany and its sensitivity to the appropriate model," Discussion Papers 2015/5, Free University Berlin, School of Business & Economics.
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    4. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(4), pages 773-788, December.
    5. Arrazola, María & de Hevia, José & Romero, Desiderio & Sanz-Sanz, José Félix, 2014. "Personal Income Tax Reforms and the Elasticity of Reported Income to Marginal Tax Rates: An Empirical Analysis Applied to Spain," Working Paper Series 18851, Victoria University of Wellington, Chair in Public Finance.
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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