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How Far are We from the Slippery Slope? The Laffer Curve Revisited

  • Harald Uhlig

    (University of Chicago)

  • Mathias Trabandt

    ()

    (Board of Governors of the Federal Reserve System)

We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring â€constant Frisch elasticity†(CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.

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Paper provided by Becker Friedman Institute for Research In Economics in its series Working Papers with number 2009-005.

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Date of creation: 2009
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Handle: RePEc:bfi:wpaper:2009-005
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