Thoughts on the Laffer Curve
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The first part of the paper by Canto, Joines, and Laffer, which is the only part I will discuss, sets up a simple general equilibrium model with two factors (both taxed proportionately) and one output, and proceeds to grind out the solutions. The model, while not entirely unobjectionable, is certainly not outlandish in any important respect. The authors make no claims that the model tells us anything about the U.S. economy; nor do they draw any policy conclusions. They use the model to provide intellectual underpinnings for the celebrated “Laffer Curve”—the notion that the function relating tax receipts to tax rates rises to a peak and then falls.
KeywordsHome Sector Interest Elasticity Simple General Equilibrium Model Intellectual Underpinning Optimal Taxation Framework
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- Atkinson, A.B. and N.H. Stern. “Taxation and Incentives in the U.K.: A Comment.” Lloyds Bank Review, April 1980.Google Scholar
- Canto, V.A., D.H. Joines, and R.I. Webb. “Empirical Evidence of the Effects of Tax Rates on Economic Activity.” mimeo, University of Southern California, September 1979.Google Scholar