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

By Mathias Trabandt, Harald Uhlig. Social Science Research Network, 2009

220 citations recorded by the source corpus.

The goal of this paper is to examine the shape of the Laffer curve quantitatively in a simple neoclassical growth model calibrated to the US as well as to the EU-15 economy. We show that the US and the EU-15 area are located on the left side of their labor and capital tax Laffer curves, but the EU-15 economy being much closer to the slippery slopes than the US. Our results indicate that since 1975 the EU-15 area has moved considerably closer to the peaks of their Laffer curves. We find that the slope of the Laffer curve in the EU-15 economy is much flatter than in the US which documents a much higher degree of distortions in the EU-15 area. A dynamic scoring analysis shows that more than one half of a labor tax cut and more than four fifth of a capital tax cut are self-financing in the EU-15 economy.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/de98d5ef505fc235b08fe3e6973f8d0d119b21cc

Citations in the corpus

• Monetary Science, Fiscal Alchemy ∗ (2010, unknown): “(21)As Trabandt and Uhlig (2009) report, for capital taxes, the United States has far less room to maneuver, while both the United States and Europe are far from their fiscal limits for consumption taxes.”