Sweden's Laffer Curve: Taxation and the Unobserved Economy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractRecent research on the unobser'ved economy sugges ts that the phenomenon has important implications for both macroeconomic policy and public finance. This paper focuses attention on the public finance implications by developing a simple macromodel from which it is possible to derive a Laffer curve. The model reveals that the shape and position of the Laffer curve depend upon the strength of supply side.effects, the progressivity of the tax systern and the size of the unobserved economy. Using alternative parameterizations of each of these effects, it is possible to obtain rough empirical estimates of the Laffer curve for Sweden. and where various economies are on their curves, it is generally accepted that the dependence of tax revenues on tax rates is too oversimplified in standard macroeconomic theory to deal with these issues. To remedy this deficiency we present a highly aggregat ed supply side model that attempts to elucidate some of the main issues involved.The amount of tax revenue realized under any particular legislated income tax rate structure depends at the aggregate levelon three basic and distinct influences. First there is a supply side effect on tax revenues. The tax base is influenced by the existence of taxes which alter the set of profit and utility maximizing capital and labor choices. In general there will be same tendency to withdraw capita 1 and l abor from the market as tax rates increase, leaving less incentive to participate in taxed mark et production. 2Leisure and non-taxed home production activities are made relatively more attractive by higher tax rates. Likewise the use of capital in home production and the abandonment of capital projects may increase as capital income from market production is increasingly taxed. The extent of supply side tax base shrinkage will depend on the degree of substitution factor owners engage in between the untaxed home and taxed mark et sectors. This substitution depends on the e1asticity of the labor and capital supplies.There is~ in addition, a second potential source of tax base shrinkage due to higher taxes. Even if factor supplies are relatively inelastic, this second source can create a limit to tax revenues below 100% taxation. Rather than withdrawing labor and capital services from the market, individuals may react to higher tax rates by simp1y continuing their activities but refusing to report them and pay taxes on them. Hence the tax bas...

The Underground Economy and Tax Base Erosion

“…Note 4. Feige and McGee (1983) used marginal tax rate and average tax rate to express the tax rate progression concept. They asserted that ignoring the progression concept decreases the realistic nature of the model.…”

“…Regarding the effects that underground economic activity has on tax base erosion, this study referenced the Cobb-Douglas household sector pattern utility function model employed by Feige and McGee (1983) (Note 4). Using this model, this study set the utility of representative taxpayers as consumption and leisure, and future consumption and leisure as the discounted time preference rate.…”

Lietuvos mokesčių sistemos efektyvumo vertinimas

“…Vėliau Lafero kreivės forma ir pozicija priklauso nuo pasiūlos veiksnių stiprumo, mokesčių sistemos progresyvumo ir šešėlinės ekonomikos dydžio (Feige, McGee, 1983). A.…”

“…Taip pat nemaža dalis autorių (Juozaitienė, 2009;Buškevičiūtė, 2007;Rakauskaitė, 2006; Levišauskaitė, šinkūnienė, 2006) analizavo apmokestinimo teorinius aspektus, pagrindinius principus ir idėjas, kaip turėtų būti formuojama šalies mokesčių sistema. Tuo tarpu, darbų, analizuojančių Lietuvos bendrųjų mokestinių pajamų priklausomybę nuo mokesčio tarifo dydžio, vis dar pasigendama, nors užsienio literatūroje tokio pobūdžio tyrimai plačiai nagrinė-jami (Trandafir, Berezeanu, 2011;Heijman, Ophem, 2005;Feige, McGee, 1983).…”

Distorsiones fiscales y la curva de Laffer en la República Dominicana

“…3 2. Estudios empíricos incluyen a Feige y McGee (1983), van Ravestein y Vijlbrief (1988), Hsing (1996), Heijman y van Ophem (2005.…”