Encyclopedia of Law and Economics

Living Edition
| Editors: Alain Marciano, Giovanni Battista Ramello

Laffer Effect

Living reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7883-6_280-1

Abstract

The Laffer effect, that takes its name from Arthur Laffer, the economist who presented it in discussions to support tax cuts by US President Ford (1974-1977), consists of the increase of the tax revenue caused by reductions of tax burdens. This principle had already presented in the past by Suetonius (119/122), Pufendorf (1672), Hume (1742), Montesquieu (1748), in various contexts, either for the maximization of tax revenues or for that of national wealth and welfare. In contemporary economics, the tax cuts to increase tax revenue and GDP have been theorized in a supply side and public choice approach by James Buchanan and others, either as mere tax policies or in broader supply side-policy frame, as that of deregulation. The Laffer effect may be misunderstood through fiscal illusions. Is has often been muddled with Keynesian demand-side approaches.

Keywords

Taxable Basis Shadow Economy Balance Budget Maximum Revenue Free Government 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
This is a preview of subscription content, log in to check access.

References

  1. Blankart CB (1991) Offentliche Finanze in Demokratie. Verlag Vahlen, MunchenGoogle Scholar
  2. Brennan G, Buchanan JM (1980) The power to tax: analytical foundations of a fiscal constitution. Cambridge University Press, CambridgeGoogle Scholar
  3. Buchanan JM, Lee DR (1982a) Tax rates and tax revenues in political equilibrium. Econ Inq 20(3):344–354CrossRefGoogle Scholar
  4. Buchanan JM, Lee DR (1982b) Politics, time and the Laffer curve. J Polit Econ 90:816–819CrossRefGoogle Scholar
  5. Buchanan JM, Wagner R (1977) Democracy in deficit. The political legacy of Lord Keynes. Academic, New YorkGoogle Scholar
  6. Canto Victor A, Douglas H. Joines, Robert I. Webb (1982) The revenue effects of the kennedy tax cuts. In: Victor A. Canto, Douglas H. Joines, and Arthur B. Laffer (eds) Foundations of supply-side economics – theory and evidence. Academic Press, New YorkGoogle Scholar
  7. Fedeli S, Forte F (2008) The Laffer effects of a program of deregulation cum detaxation: the Italian reform of labor contracts in the period 1997–2011. Eur J Law Econ 27:211–232CrossRefGoogle Scholar
  8. Fedeli S, Forte F (2014a) Political and fiscal illusion and the Laffer curve reflections on an Italian case. In: Backhaus J (ed) Fiscal sociology. Peter Lang, Frankfurt am Main, pp 95–114Google Scholar
  9. Fedeli S, Forte F (2014b) Deficits, tax burden and unemployment. In: Forte F, Mudambi R, Navarra PM (eds) A handbook of alternative public economics. Elgar, Cheltenham, pp 116–139Google Scholar
  10. Fedeli S, Forte F, Zangari E (2008) An eeconometric analysis of the employment and revenue effects of the Treu reform in the period 1997–2001. Riv Polit Econ XCVII:215–248Google Scholar
  11. Forte F (1987) The Laffer curve and the theory of the fiscal bureaucracy. Public Choice 52(2):101–124CrossRefGoogle Scholar
  12. Forte F (2008) On the ethics of the Laffer curve. In: Forte F (ed) Money, markets and morals. Acedo, Munchen, pp 75–84Google Scholar
  13. Forte F, Bondonio PV, Jona L (1980) Il sistema tributario. Boringhieri, TorinoGoogle Scholar
  14. Frey BS, Weck H (1988) Bureaucracy and shadow economy: a macro-approach. In: Hanusch H(ed) Anatomy of government deficiencies. Berlin, Springer, pp 89–105Google Scholar
  15. Gerloff W (1948) Die oeffentliche finanzwissenschaft, Vol. I, Frankfurt, Klostermann, II edGoogle Scholar
  16. Gutman PM (1981) Implications of the subterranean economy. In: Bove RX, Klingenstein RD (eds) Wertheim’Grund economy conference, Wertheimpp, pp 31–58Google Scholar
  17. Hume D (1742) Essays moral, political and literary. Liberty Fund, IndianapolisGoogle Scholar
  18. Keynes JM (1933) The means to prosperity. In: Essays on persuasion, vol IX (1972) of collected writings, Macmillan, Cambridge University Press, pp 335–366Google Scholar
  19. Laffer A (2004) The Laffer curve. Past, present and future. Heritage FoundationGoogle Scholar
  20. Monissen HG (1985) Optimale Staatsgröße in einem Einkommensteuerregime. In: Milde H, Monissen HG (eds) Rationale Wirtschaftspolitik in komplexen Gesellschaften. W. Kohlhammer, StuttgartGoogle Scholar
  21. Monissen HG (1999) Explorations of the Laffer curve, Würzburg economic papers 99-09 reedited in Forte F (2008), Money, markets and morals. Acedo, Munchen, pp 61–83Google Scholar
  22. Montesquieu C (1748) De l’esprit des Lois. Garnier-Flammarion, ParisGoogle Scholar
  23. Pufendorf De Jure Naturæ et Gentium Libri Octo (1672) Liber VIII, I, 5, English trans. by G. Carew (1729), as of the Law of Nature and Nations: Eight Books, Buffalo, New York, William S. Hein reprint, London, Aris 1729 available on GoogleGoogle Scholar
  24. Smith A 1937 (1776) An inquiry into the nature and causes of the wealth of nations. Modern Library, New YorkGoogle Scholar
  25. Suetonius, (119/122), The lives of the twelve Caesars (English trans: Rolfe JC, Teubner, 1907)Google Scholar
  26. Tanzi V (2014) The Laffer curve muddle. In: Forte F, Mudambi R, Navarra PM (eds) A handbook of alternative public economics. Elgar, Cheltenham, pp 104–115Google Scholar
  27. Trabandt M, Uhlig H (2009) How far are we from the slippery slope? The Laffer curve revised. NBER working paper no 15343Google Scholar
  28. Wanniski J (1978) Taxes, revenues, and the Laffer curve. Public Int 50:3–16Google Scholar

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of Economics and LawSapienza - University of RomeRomeItaly