The Laffer Curve in an Incomplete-Market Economy
This paper investigates the characteristics of the Laffer curve in a neoclassical growth model of the US economy with incomplete markets and heterogeneous agents. The shape of the Laffer curve changes depending on which of transfers or government debt are varied to balance the government budget constraint. While the Laffer curve has the traditional shape when transfers vary, it looks like a horizontal S when debt varies. In this case, fiscal revenues can be associated with up to three different levels of taxation. This finding occurs because the tax rates change non-monotonically with public debt when markets are incomplete.
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01-03, Duke University, Department of Economics.
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"How Far Are We From The Slippery Slope? The Laffer Curve Revisited,"
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SFB649DP2006-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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- Mathias Trabandt & Harald Uhlig, 2009. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited," NBER Working Papers 15343, National Bureau of Economic Research, Inc.
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CQER Working Paper
2010-07, Federal Reserve Bank of Atlanta.
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- David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
- Sigrid Röhrs & Christoph Winter, 2011. "Wealth inequality and the optimal level of government debt," ECON - Working Papers 051, Department of Economics - University of Zurich.
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