Tax Aversion, Laffer Curve, and the Self-Financing of Tax Cuts
Applied Economics and Finance, Vol. 2, No. 2, pp. 14-18, May 2015
5 Pages Posted: 12 Mar 2015
Date Written: March 12, 2015
High taxation is found to lead not to less labor supply but to more tax evasion and/or black labor. Investigating next what this implies for the course of the tax revenue and subsequently for the shape of the Laffer curve, this curve is found to change with the tax induced change of taxpayer preferences over tax compliance and tax aversion. Hence, the relevant Laffer curve when contemplating tax cuts should be the one after the last tax increase and cannot thereby be fully self-financed.
Keywords: Laffer curve, Tax evasion/black labor, Self-financing tax cuts
JEL Classification: E62, H26, J22
Suggested Citation: Suggested Citation