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The Binary Choice Approach of Laffer Curve


  • Mihai Mutascu

    () (Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, Romania)


The paper analyzes empirically, based on “Laffer effects”, in Romania’s case, the relationship between tax revenues (dependent variable) and tax rates (independent variables). The analysis is based on the construction of a binary choice model (Linear Probit Model) and the data set is covering the period 1999 - 2009 (first trimester), with quarterly frequency. The main results show that the two “Laffer effects” have a different probability of existence. If the government knows which the maximum probabilities are for each of the two effects, then he can construct a coherent tax policy arrangement that raise or decrease the tax revenues, based on flat or progressive tax systems (the tax evasion is considered to be constant).

Suggested Citation

  • Mihai Mutascu, 2012. "The Binary Choice Approach of Laffer Curve," FEAA Working Papers 2012.FEAA.F.01, West University of Timisoara, Romania, Faculty of Economics and Business Administration.
  • Handle: RePEc:wun:wpaper:2012.feaa.f.01

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    File Function: First version, April, 2012
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    References listed on IDEAS

    1. Cerqueti, Roy & Coppier, Raffaella, 2009. "Tax revenues, fiscal corruption and "shame" costs," Economic Modelling, Elsevier, vol. 26(6), pages 1239-1244, November.
    2. Sanyal, Amal & Gang, Ira N & Goswami, Omkar, 2000. "Corruption, Tax Evasion and the Laffer Curve," Public Choice, Springer, vol. 105(1-2), pages 61-78, October.
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    More about this item


    Tax revenues; Tax rates; Laffer curve; Effects; Probability; Probit analysis;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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