The Laffer curve became fashionable among US Republicans in the 1970s and 1980s, leading to the 1981 tax cut that proved that the US was still on the right side of the curve. But since, tax rates have increased overall, as well as in other countries, where they were higher to start with. So are all these countries still on the good side of the Laffer curve?
Mathias Trabandt and Harald Uhlig study this problem using a neoclassical growth model and new estimates of tax data. And the US is still far from the slippery slope, but not surprisingly closer for capital income tax than for labor income tax. Even for Europe, countries are generally on the right side of the curve. Exceptions: Denmard and Sweden for capital income taxes.
Note that the whole argument here is about the maximization of government revenue. That is usually not the objective. And there are also ways to raise significant revenue while improving a country's welfare, like taxing negative externalities and sins. But at least this paper should put to rest the argument that taxes need to be lowered to raise more revenue.
No comments:
Post a Comment