The Laffer Curve in an Incomplete-Market Economy

Fève, Patrick, Matheron, Julien and Sahuc, Jean-Guillaume (2012) The Laffer Curve in an Incomplete-Market Economy. TSE Working Paper, n. 12-288

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Official URL: http://tse-fr.eu/pub/25754

Abstract

This paper is a quantitative investigation into the characteristics of the Laffer curve in a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents. We show that the shape of the Laffer curves related to taxes on labor, capital and consumption dramatically changes depending on which of transfers or government debt are adjusted to make the government budget constraint hold. When transfers are adjusted, the Laffer curve has the traditional shape. However, when debt is adjusted, the Laffer curve looks like a horizontal S, in which case fiscal revenues can be associated with up to three diferent levels of taxation. This finding occurs because the tax rates change non monotonically with public debt when markets are incomplete.

Item Type: Monograph (Working Paper)
Language: English
Date: April 2012
JEL codes: E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook
H6 - National Budget, Deficit, and Debt
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:24
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:25754
URI: http://publications.ut-capitole.fr/id/eprint/15251

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