How Far are We from the Slippery Slope? The Laffer Curve Revisited

59 Pages Posted: 22 Apr 2010

See all articles by Mathias Trabandt

Mathias Trabandt

Board of Governors of the Federal Reserve System; Sveriges Riksbank

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 5 versions of this paper

Date Written: April 1, 2010

Abstract

We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring "constant Frisch elasticity" (CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.

Keywords: Laffer Curve, Incentives, Dynamic Scoring, US and EU-14 Economy

JEL Classification: E0, E60, H0

Suggested Citation

Trabandt, Mathias and Uhlig, Harald, How Far are We from the Slippery Slope? The Laffer Curve Revisited (April 1, 2010). ECB Working Paper No. 1174, Available at SSRN: https://ssrn.com/abstract=1585175

Mathias Trabandt (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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