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The Laffer curve revisited

<span class="t3js-icon icon icon-size-small icon-state-default icon-actions-edit-merge-localization"> <span class="icon-markup"> </span></span>Laffer curves for the US, the EU-14 and individual European countries are compared, using a neoclassical growth model featuring “constant Frisch elasticity” (CFE) preferences. New tax rate data is provided. The US can maximally increase tax revenues by 30% with labor taxes and 6% with capital taxes. We obtain 8% and 1% for the EU-14. There, 54% of a labor tax cut and 79% of a capital tax cut are self-financing. The consumption tax Laffer curve does not peak. Endogenous growth and human capital accumulation affect the results quantitatively. Household heterogeneity may not be important, while transition matters greatly.

30. July 2011

Authors Mathias Trabandt Harald Uhlig

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Professor Dr Mathias Trabandt
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