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Tax Rates and Tax Collections: The Basic Analytics of Khaldun-Laffer Curves

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  • Roy D. Adams

    (Iowa State University)

Abstract

This article describes the relation between tax rates and tax collections for three different types of taxes: unit excises, ad valorem excises, and general income taxes. The tax rate-tax collections relationship is currently the subject of widespread discussion, but the determinants of the shape of the function have not been clearly specified. This article presents mathematical and graphical expositions of the linkage between supply and demand for taxed commodities and the tax rate-tax collections relationship. The tax collections function will often, but not always, be shaped as it is commonly drawn; its shape is uniquely determined by the underlying supply and demand functions in the taxed market. Whether a tax rate change will increase or reduce tax collections is always an empirical issue which depends on the values of items identified by the theoretical analysis in this article.

Suggested Citation

  • Roy D. Adams, 1981. "Tax Rates and Tax Collections: The Basic Analytics of Khaldun-Laffer Curves," Public Finance Review, , vol. 9(4), pages 415-430, October.
    • Handle: RePEc:sae:pubfin:v:9:y:1981:i:4:p:415-430
    DOI: 10.1177/109114218100900403
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    References listed on IDEAS

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    1. Robert L. Bishop, 1968. "The Effects of Specific and Ad Valorem Taxes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(2), pages 198-218.
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    Cited by:

    1. Paulsen, Jim William, 1983. "Optimal and maximal taxation within and among industries with various degrees of competitiveness," ISU General Staff Papers 198301010800009427, Iowa State University, Department of Economics.
    2. Lovisa Moller, 2016. "Tax revenue implications of trade liberalization in low-income countries," WIDER Working Paper Series 173, World Institute for Development Economic Research (UNU-WIDER).
    3. Muhammad Hussain, 1993. "A Macroeconomic Taxation Model for an Islamic Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 947-960.

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