Distortionary Taxation and the Debt Laffer Curve

24 Pages Posted: 15 Feb 2006

See all articles by Aasim Husain

Aasim Husain

International Monetary Fund (IMF) - Research Department

Date Written: January 1992

Abstract

This paper highlights the importance of the role of the domestic tax system in determining the economic consequences of an external debt overhang. A simple taxation scheme is specified and it is shown that a country can be on the "wrong side" of its debt Laffer curve only if it is on the wrong side of its tax Laffer curve. The analysis indicates that fairly strong, and probably unrealistic, assumptions about the domestic tax system are needed to argue that the investment disincentives associated with the debt overhang are large enough to place a country on the wrong side of its debt Laffer curve.

JEL Classification: F34

Suggested Citation

Husain, Aasim, Distortionary Taxation and the Debt Laffer Curve (January 1992). IMF Working Paper No. 92/10, Available at SSRN: https://ssrn.com/abstract=884572

Aasim Husain (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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