Tax avoidance and fiscal limits: Laffer curves in an economy with informal sector
The paper extends the QUEST III model by home production to discuss fiscal limits in an economy with tax avoidance. It finds that revenue-maximising labour and corporate tax rates in the benchmark model are relatively high (54% and 72%) compared to current EU-average implicit tax rates. No such limit is found for the consumption tax. Higher substitutability between market and home production flattens the Laffer curves for labour and corporate taxation and introduces one for the consumption tax. Although higher tax rates raise additional tax revenue, the economic costs of higher distortionary taxation in terms of output contraction are substantial.
|Date of creation:||Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Inter-institutional relations and communication Unit, B-1049 Brussels|
Fax: +32 2 298.08.23
Web page: http://ec.europa.eu/economy_finance/index_en.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0448. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO)
If references are entirely missing, you can add them using this form.