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The Laffer curve revisited |
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| Authors: | Mathias Trabandt Harald Uhlig |
| Institution: | a European Central Bank, Directorate General Research, Monetary Policy Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany b Sveriges Riksbank, Research Division, Sweden c Department of Economics, University of Chicago, 1126 East 59th Street, Chicago, IL 60637, USA d CentER, Netherlands e Deutsche Bundesbank, Germany f NBER, USA g CEPR, UK |
| Abstract: | 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. |
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