A full-fledged analytical model for the Laffer curve in personal income taxation



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Sanz Sanz, José Félix (2022) A full-fledged analytical model for the Laffer curve in personal income taxation. Economic Analysis and Policy, 73 . pp. 795-811. ISSN 0313-5926

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Official URL: https://doi.org/10.1016/j.eap.2022.01.008


The standard approach to evaluate the Laffer curve of personal income taxation focuses on the impact on income tax revenue alone. However, this is an incomplete depiction of reality, as income tax rate changes also affect revenue collection from other taxes -i.e. consumption taxes and social security contributions. In addition, to the extent that administration and compliance costs correlate with tax rates, the Laffer curve should also consider this correlation. This paper develops a complete microeconomic model for the Laffer curve of personal income tax, taking into account all these omissions. Results confirm that these omissions generate the false illusion of a Laffer curve with a higher-than-real revenue maximum and a narrower prohibitive zone than exists in reality.

Item Type:Article
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CRUE-CSIC (Acuerdos Transformativos 2022)

Uncontrolled Keywords:Laffer curve; Social security contributions; Tax revenue; Personal income tax; Administration costs; Compliance costs.
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Public finance
JEL:D1, D61, H2, H21, H24, H31, H55
ID Code:72503
Deposited On:26 May 2022 07:27
Last Modified:18 Oct 2022 09:01

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