A Tax Reform Analysis of the Laffer Argument
This paper shows that tax reform techniques are well-suited to an examination of the Laffer argument, i.e., the possibility that an increase in a tax rate may reduce tax revenues (and vice versa). Our methodology allows us to examine the Laffer argument directly, without deriving the Laffer curve, which in turn allows us to conduct the analysis in a very general setting. Despite the high level of generality, we are able to reach some clear conclusions that provide formal support for the established intuitions that the Laffer effect requires: (i) a 'high' labour-income tax rate, and (ii) a 'large' labour supply response to wage changes. The notions of 'high' and 'large' are made precise in our framework. The analysis also provides indirect support for the intuition that it is never optimal for a government to operate on the downward-sloping segment of the Laffer curve. Finally, we show that our methods provide a theoretical framework for an empirical investigation.
|Date of creation:||May 2007|
|Contact details of provider:|| Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom|
Phone: (0)1904 323776
Web page: https://www.york.ac.uk/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Novales, Alfonso & Ruiz, Jesus, 2002.
"Dynamic Laffer curves,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 27(2), pages 181-206, December.
- Agell, Jonas & Persson, Mats, 2001.
"On the analytics of the dynamic Laffer curve,"
Journal of Monetary Economics,
Elsevier, vol. 48(2), pages 397-414, October.
- Agell, J. & Persson, M., 2000. "On the Analytics of the Dunamic Laffer Curve," Papers 2000:5, Uppsala - Working Paper Series.
- Jonas Agell & Mats Persson, 2000. "On the Analytics of the Dynamic Laffer Curve," CESifo Working Paper Series 383, CESifo Group Munich.
- Agell, Jonas & Persson, Mats, 2000. "On the Analytics of the Dynamic Laffer Curve," Working Paper Series 2000:5, Uppsala University, Department of Economics.
- Hindriks, Jean, 2001.
" Mobility and Redistributive Politics,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 3(1), pages 95-120.
- HINDRIKS, Jean, "undated". "Mobility and redistributive politics," CORE Discussion Papers RP 1536, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hindriks, J., 1999. "Mobility and Redistributive Politics," Discussion Papers 9915, Exeter University, Department of Economics.
- Sushama Murty & R. Robert Russell, 2005. "Externality Policy Reform: A General Equilibrium Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(1), pages 117-150, 02.
- Guesnerie, Roger & Jerison, Michael, 1991.
"Taxation as a social choice problem : The scope of the Laffer argument,"
Journal of Public Economics,
Elsevier, vol. 44(1), pages 37-63, February.
- Guesnerie, R. & Jerison, M., 1990. "Taxation as a Social Choice Problem, the Scope of the Laffer Argument," DELTA Working Papers 90-06, DELTA (Ecole normale supérieure).
- Roger Guesnerie & Michael Jerison, 1989. "Taxation as a Social Choice Problem, The Scope of the Laffer Argument," Discussion Paper Serie A 245, University of Bonn, Germany.
- Gahvari, Firouz, 1989. "The nature of government expenditures and the shape of the laffer curve," Journal of Public Economics, Elsevier, vol. 40(2), pages 251-260, November.
- Blackorby, Charles & Murty, Sushama, 2006.
"Unit Versus Ad Valorem Taxes : Monopoly In General Equilibrium,"
The Warwick Economics Research Paper Series (TWERPS)
761, University of Warwick, Department of Economics.
- Blackorby, Charles & Murty, Sushama, 2007. "Unit versus ad valorem taxes: Monopoly in general equilibrium," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 817-822, April.
- Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, 04.
- Marc Fleurbaey, 2005.
"Is Commodity Taxation Unfair?,"
IDEP Working Papers
0502, Institut d'economie publique (IDEP), Marseille, France, revised Jan 2005.
- Malcomson, James M., 1986. "Some analytics of the laffer curve," Journal of Public Economics, Elsevier, vol. 29(3), pages 263-279, April.
- Robert Carroll & Warren Hrung, 2005. "What Does the Taxable Income Elasticity Say About Dynamic Responses to Tax Changes?," American Economic Review, American Economic Association, vol. 95(2), pages 426-431, May.
- Fullerton, Don, 1982.
"On the possibility of an inverse relationship between tax rates and government revenues,"
Journal of Public Economics,
Elsevier, vol. 19(1), pages 3-22, October.
- Don Fullerton, 1980. "On the Possibility of an Inverse Relationship between Tax Rates and Government Revenues," NBER Working Papers 0467, National Bureau of Economic Research, Inc.
- Guesnerie, Roger, 1977.
"On the direction of tax reform,"
Journal of Public Economics,
Elsevier, vol. 7(2), pages 179-202, April.
- Diewert, W. E., 1978. "Optimal tax perturbations," Journal of Public Economics, Elsevier, vol. 10(2), pages 139-177, October.
- Jon Gruber & Emmanuel Saez, 2000.
"The Elasticity of Taxable Income: Evidence and Implications,"
NBER Working Papers
7512, National Bureau of Economic Research, Inc.
- Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
- Hansson, Asa & Stuart, Charles, 2003. "Peaking of fiscal sizes of government," European Journal of Political Economy, Elsevier, vol. 19(4), pages 669-684, November.
- Weymark, John A., 1979. "A reconciliation of recent results in optimal taxation theory," Journal of Public Economics, Elsevier, vol. 12(2), pages 171-189, October.
- Alan Krause, 2007. "Generational incidence of savings taxation versus capital-income taxation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 113-129.
When requesting a correction, please mention this item's handle: RePEc:yor:yorken:07/10. 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: (Paul Hodgson)
If references are entirely missing, you can add them using this form.