448 - Tax avoidance and fiscal limits: Laffer curves in an economy with informal sector - Lukas Vogel
Author(s): Lukas Vogel, European Commission
Tax avoidance and fiscal limits: Laffer curves in an economy with informal sector(2 MB)
Summary for non-specialists(473 kB)
The paper extends the QUEST III model by home production to discuss fiscal limits in an economy with tax avoidance. It finds that revenue-maximising labour and corporate tax rates in the benchmark model are relatively high (54% and 72%) compared to current EU-average implicit tax rates. No such limit is found for the consumption tax. Higher substitutability between market and home production flattens the Laffer curves for labour and corporate taxation and introduces one for the consumption tax. Although higher tax rates raise additional tax revenue, the economic costs of higher distortionary taxation in terms of output contraction are substantial.
(European Economy. Economic Papers 448. January 2012.
Brussels. PDF. 25pp. Tab. Graph. Bibliogr. Free.)
JEL classification: E62, H20, H30
Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.