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

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Sanz Sanz, José Félix (2016) The Laffer curve in schedular multi-rate income taxes with non-genuine allowances: An application to Spain. Economic Modelling, 55 . pp. 42-56. ISSN 0264-9993

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Official URL: http://dx.doi.org/10.1016/j.econmod.2016.01.024




Abstract

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.


Item Type:Article
Uncontrolled Keywords:Laffer curve; Taxable income elasticity; Tax revenue; Spanish individual income tax.
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Public finance
ID Code:56279
Deposited On:10 Jul 2019 09:29
Last Modified:10 Jul 2019 10:38

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