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Title:How far are we from the slippery slope?: The Laffer curve revisited PDF Logo
Authors:Trabandt, Mathias
Uhlig, Harald
Issue Date:2006
Series/Report no.:SFB 649 discussion paper 2006,023
Abstract: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.
Subjects:Laffer curve
US and EU-15 economy
JEL:E0
E60
H0
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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