The Laffer Curve and Government Optimization of the Tax Revenues: The Cartagena De Indias Case
35 Pages Posted: 13 Apr 2007
Date Written: April 2007
The public managers worries to increase the local government revenues are almost always related with changes in the tax rates, affecting all the agents in the economy. However, at the same time tax exemptions are used like policy instrument in order to achieve economic growth in some sectors, increasing the pressure over some other sectors. This document analyzes the effect of the tax rate changes over the local government revenues by the estimation of elasticities. This relation is known as the Laffer Curve. The main results show an inelastic relation between the tax rate and the revenues, which means that an increase of 1% in the tax rate generates an increase in local government revenues in less than a 1%. The results of the model suggest that a local policy oriented to raise the local government revenues increasing the tax rate is not effective.
Note: Downloadable document is in Spanish
Keywords: Cartagena, local government revenues, tax rates, Laffer Courve
JEL Classification: H21, H30
Suggested Citation: Suggested Citation