The Laffer Curve Revisited
According to a new study, the U.S. is well down on the lower half of the Laffer curve, meaning that taxes could be increased substantially before the backward bending side of the curve is reached. This is not an argument for raising taxes, only an argument against a common right-wing argument against raising taxes; i.e., that no net additional revenue would be collected if tax rates are raised because of a Laffer curve effect.
How Far Are We from the Slippery Slope? The Laffer Curve Revisited
Mathias Trabandt and Harald Uhlig
NBER Working Paper No. 15343 (September 2009)
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.