Peaking of fiscal sizes of government

Transfers, spending, and tax revenue peaked as percentages of the gross national product (GNP) in most OECD countries during 1972–1992. The evidence suggests that a number of countries pushed transfers close to or perhaps beyond sustainable limits imposed by the Laffer curve. Namely: (i) stylized calculations of Laffer limits suggest peak fiscal sizes in the range of observed peaks in the countries with the greatest peak sizes; and (ii) the countries with the greatest peak sizes had the greatest declines in fiscal sizes from peaks until 1992.     

The Laffer curve in schedular multi-rate income taxes with non-genuine allowances: An application to Spain

This paper models the connection between tax revenue and marginal tax rates in modern personal income taxes. In so doing, new analytical expressions for the elasticity of tax revenue to tax rates are derived taking into account global and schedular income taxes in the presence of non-standard allowances. Based on these new analytical elasticities the implicit Laffer curve is characterised and explored in detail. Calculations are performed for the individual taxpayer and the aggregate population. When applied to microdata, the model permits us to locate individually the position of every taxpayer on the entire range of the Laffer curve as well as to characterise the “representative” aggregate Laffer curve. The utility of the model to forecast revenue is illustrated by applying it to Spanish personal income tax. The model confirms that the Laffer curve is essentially an intrinsic individual matter although a virtual aggregate Laffer curve for the whole population can be inferred.     

Are the Laffer curve and the green paradox mutually exclusive?

In this paper, we study the relationship between the Laffer curve and the green paradox in the context of a Ramsey model with endogenous labor supply in which pollution increases consumer demand (through a compensation effect). We find that—in the long run—the conditions under which a Laffer curve and a green paradox emerge are mutually exclusive. Indeed, the Laffer curve exists under a weak compensation effect, while the green paradox requires a strong effect. Also, we find that, in the short run, limit cycles may arise in the presence of a Laffer curve, while they never occur under a green paradox.     

Getting on the wrong side of the Laffer curve

A Laffer curve constraint upon the government's ability to tax is assumed, in a simple economy with progressive negative income taxation, publicly provided goods and a government deficit which is a constant fraction of total income. If government's objective function is defined over the distributions of private consumption goods and publicly provided goods, and favours redistribution, then it can be optimal to set a tax rate in the prohibitive region of the assumed Laffer curve.     

Public policy for reducing tax evasion: implications of the Yule–Simpson paradox

The current study exhibits a new implication of the Yule–Simpson paradox with public policy repercussions. We construct Laffer curves of local property tax collection based on aggregated data and group division to residential land uses in Jerusalem. Results indicate that based on aggregated (dis-aggregated) data, the location of owner-occupiers and renters who pay a relatively high rate tariff will be on the upward-sloping (downward-sloping) part of the Laffer curve. Consequently, statistical test outcomes support Laffer’s controversial claim that for the few upper-brackets taxpayers, an efficient collection is associated with tax reduction rather than tax increase.     

拉弗曲线的深度分析--兼析中国个人所得税制的政策涵义

目前,中国贫富差距越来越大,已对社会经济发展构成不利.个人所得税应成为再分配的调节工具之一,适当的个人所得税边际税率机制并不会像想象的那样伤害效率.但强调效率的人会以拉弗曲线为依据,主张降低个人所得税边际税率.本文对拉弗曲线进行了较深入的分析,证明拉弗曲线在说明个人所得税边际税率与税收之间的关系时,存在一定的理论缺陷和局限性.中国个人所得税制应该加重高收入者税负,尽量不伤害中间阶层,减轻低收入者税负.     

Debt,seigniorage, and the Growth Laffer Curve in developing countries

The endogenous growth literature established the existence of an inverted-U curve between taxes and economic growth, namely a Growth Laffer Curve, but empirical evidence on this relationship in developing countries is rather limited. Given that seigniorage and public debt are also important means of financing public spending in these countries, we take into account in this paper their respective impacts on growth, as they might deform the existing relationship between taxes and growth. To this end, we develop a growth model with public investment as the engine of perpetual growth, and look for the effect of debt, tax and money financing on economic growth. We study in particular the way fiscal and monetary policies deform the Growth Laffer Curve in developing countries. An empirical section based on a panel of 100 developing countries over the period 1980–2010 provides both OLS-Fixed Effects and GMM-system estimations that support our theoretical conclusions, namely the existence of Growth Laffer Curves indexed by the levels of debt and of seigniorage.     

Seigniorage and public good in an OLG model with cash-in-advance constraints

This paper is a contribution to the theory of the optimal monetary policy in overlapping generations models with a cash-in-advance constraint applying on old age consumption purchases. We are particularly interested in the study of seigniorage when the latter is used to finance public goods valued by consumers. Assuming that a public good enters the utility function and the existence of cash-in-advance constraints, we find a Laffer curve of seigniorage at steady-state. We also analyze the dynamic optimal monetary policy when the government maximizes an intertemporal social welfare function and can only resort to seigniorage to finance the purchases of the public good. We show that the optimal rate of money growth may be strictly higher than the one which maximizes steady-state seigniorage: the optimal amount of seigniorage may lie on the decreasing part of the Laffer curve of seigniorage. We finally suppose that the government can use lump-sum taxes in addition to seigniorage. Then, the Friedman rule prevails and public expenditures are only financed through lump-sum taxes.     

On the possibility of an inverse relationship between tax rates and government revenues

When Arthur Laffer and other ‘supply side advocates’ plot total tax revenue as a function of a particular tax rate, they draw an upward-sloping segment called the normal range, followed by a downward-sloping segment called the prohibitive range. A brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates, high elasticity parameters, or both. The labor tax rate which maximizes total revenue, for example, will depend on the assumed labor supply elasticity. This paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues, separating the ‘normal area’ from the ‘prohibitive area’. A general- purpose empirical U.S. general equilibrium model is used to plot the Laffer curve for several elasticities, and to plot the newly introduced curve using the labor tax example. Results indicate that the U.S. could conceivably be operating in the prohibitive area, but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest.     

Democratic public good provision

This paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting. Expenditures are financed through age-dependent taxation that distorts human capital investment. Taxes redistribute income both across skill groups and across generations. We focus on politico-economic Markov equilibria and contrast these with the Ramsey allocation under commitment. The model features indeterminate equilibria, with a key role of forward-looking strategic voting. Due to the lack of commitment to future policies, the tax burden may be on the wrong side of the dynamic Laffer curve. Moreover, restrictions on government policies can in some cases be welfare improving.     

QUANTIFYING THE LAFFER CURVE ON THE CONTINUED ACTIVITY TAX IN A DYNASTIC FRAMEWORK*

It is argued that the tax on continued activity should be removed by implementing actuarially fair schemes. However, these schemes cannot fund the expected Social Security (SS) deficit. This article proposes to give individuals a fraction of the actuarially fair incentives in the case of postponed retirement. SS faces a trade‐off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit. This trade‐off is captured by a Laffer curve. Finally, when the SS system aims to maximize welfare, the optimal tax on postponed retirement is still strictly positive.     

Tax Morale and the Taming of Leviathan

An explanation for tax morale based upon a simple model of psychological costs that depend on the perceived legitimacy of public policies is introduced. It is shown that empirically observed low levels of tax evasion can be explained even for a risk-neutral taxpayer with such a model. In a discussion of aggregate tax revenue, it is argued that tax revenue as a function of tax rates may differ fundamentally from the notorious Laffer curve. It is then necessary to look at the interaction of formal and informal institutions to predict the nominal tax rates chosen by a revenue maximizer.      

个税免征额、税率与拉弗曲线

本文基于个人所得税改革对经济主体行为产生激励的理论,尝试将个税免征额引入拉弗曲线(Laffer curve),分析了收入变化时收入税率曲线位置的移动与拉弗曲线的形态变化,以及个税免征额与最优税率之间的运动规律,发现随着个税免征额的提高,最优税率有下降的趋势,对我国当前个税免征额的提高与税率级次级距调整现象做出了较严密的数理分析。而在分析个税免征额的选择及其与税率之间的关系时,为我们找到在当前地区收入水平不均与居民收入分布多样的状况下的最优个税免征额以及实践差别化税制的理论依据,回答了原来仅考虑税率变化的拉弗曲线所不能回答的问题。     

财政分权体制下的地方政府行为与中国经济增长——基于转型期的实证研究

以财政收支活动为具体体现的地方政府行为是在特定财政体制框架内,对财政资源在中央、地方和各微观经济主体(包括企业和个人)之间的筹集和分配,其实质是对诸多社会利益主体产权边界重新划分、界定而使其达到均衡.笔者从包含公共支出的内生增长模型,推出了反映宏观税负与经济增长关系的Laffer曲线;并利用转型期分省宏观经济数据对Laffer曲线进行了实证检验,揭示出宏观税负过重不利于经济增长的结论.     

Taxation and Laffer Effects on Employment and Growth

Some dangerous short- and long-term ambiguities of fiscal policies arise from the belief that Laffer effects may be generated from deficit-financed tax cuts able to stimulate aggregate demand. However, even in a supply-side framework, fiscal illusion prevents a rational perception of the effectiveness of Laffer-oriented fiscal measures. The ambiguity of the Laffer effect led to an important series of studies of Francesco Forte, designed to disclose and empirically test its interactions with short- and long-term fiscal policies on gross domestic product (GDP) growth and on other relevant macroeconomic variables. We discuss, under the Laffer perspective, some of Francesco Forte’s studies related to fiscal policy effects on the labour market and GDP growth.     

Money demand and seignorage maximization before the end of the Zimbabwean dollar

The delayed end to Zimbabwe's hyperinflation in 2009 gave rise to an official dollarization. Before then, the Reserve Bank of Zimbabwe (RBZ) operated on the correct side of the inflation tax Laffer curve. Estimated seignorage maximizing rates derive from Bayesian, time-varying parameter, structural vector autoregressions. Monthly changes in the ratio of prices for the Old Mutual insurance company's shares, which trade in London and Harare, serve as the measure of inflation from 1999 to 2008. Orthogonalized impulse response functions indicate that monthly seignorage maximizing rates ranged from 242% to 315% and exceeded all monthly inflation rates.     

资源配置和产出效应:金融腐败的宏观经济成本

本文根据对Solow Swan模型和Ramsey模型的修订 ,把金融腐败引入生产函数和效用函数 ,研究金融腐败的宏观经济后果 ,提出四个基本结论。第一 ,金融机构通过寻租制造稀缺 ,从而扭曲了资源价格 ,导致了资源错误配置 ,由此造成金融资源使用效率的低下 ;第二 ,腐败程度与产出水平存在拉弗曲线关系 ,或者说 ,产出水平与融资腐败程度存在多重均衡 (multipleequilibria) ,融资腐败取决于经济发展中的资金需求程度和资金的稀缺性 ;第三 ,融资腐败是一种转移支付 ,是金融机构或监管部门直接或间接攫取实体经济部门的产出收益 ,这似乎是一个零和博弈 ,但是实际情况远较此复杂。由于这种转移支付的存在 ,资金市场面临进一步的短缺 ,出现“利率偏离实体经济需求的反常抬升”。因此 ,金融腐败是制造稀缺的行为 ;第四 ,我们证明了这样一个事实———由于金融腐败的存在 ,一般宏观经济学假定的从储蓄到投资的瞬间平滑过程是不符合实际情况的 ,由此才可以解释我国金融领域一个怪异而又为大家习以为常的现象 :一方面是储蓄存款余额的迅速攀升 ,另一方面是从城镇到农村持续存在的贷款难问题。     

Enrollment and Curriculum: A Laffer Curve Analysis

When a college or graduate school toughens its curriculum, entry requirements, or graduation requirements, generally two opposite effects on enrollment will occur. First, because the graduating students have learned more and can signal to employers that they are more able, they can command higher starting wages, and this enhances enrollment. Second, the pool of students who are both eligible to enroll and able to complete the program is diminished, having a negative effect on enrollment. The resulting curve depicting enrollment as a function of the difficulty of the curriculum has the general Laffer curve properties and can be fruitfully examined. A preoccupation with current enrollment levels can lead to pressure to ease the difficulty of the curriculum, however doing so will backfire in the long run.     

The relationship between tax rates and tax revenues in eurozone member countries - exploring the Laffer curve

We estimate Laffer Curves for direct and indirect taxes for each Eurozone country, using panel data from 1995 to 2011, by means of Seemingly Unrelated Regression (SUR) models. We choose the three taxes that contribute the most to the government tax revenue: the value added tax (VAT), the corporate income tax (CT), and the labour income tax (LT). From our estimated significant parameters, which have the expected signs according to the Laffer Curve theory, we obtained a maximum/optimal tax rate for VAT for Greece, Portugal, and Slovakia and for the majority of the Eurozone countries for direct taxes. We also take into consideration the business cycle. Many countries do not present differences in regime, and when they do, the optimal tax rate is higher during recessions. Finally, we compare the observed tax rates in 2012 to the estimated optimal tax rates, to assess if the 2012 policy was located at the prohibitive range of the Laffer Curve. Our results are important for the discussions about fiscal discipline and harmonization in the Eurozone, since they exhibit important disparities between countries and taxes. We can see that, especially for CT and LT, there is a strong divide between the values of the optimal maximum tax rates for Eastern European countries and Western European economies. Additionally, the economic and financial conditions of each country also influence the value for the tax rate.     

Some analytics of the laffer curve

It is shown that, in a general equilibrium model with one private good, one public good, labour and an income tax, certain widely-assumed properties of the Laffer curve do not necessarily hold. For well-behaved functional forms it may not be continuous and may not have an interior maximum. Its slope depends on technology as well as on the tax elasticity of labour supply. For certain technologies, a more negative elasticity may imply a more positive slope. Moreover, the relevant tax elasticity is a general equilibrium one which may differ in sign from the widely- quoted partial equilibrium one.