Fève, Patrick, Matheron, Julien and Sahuc, Jean-Guillaume (2018) The Horizontally s-shaped laffer curve. Journal of the European Economic Association, 16 (3). pp. 857-893.

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Identification Number : 10.1093/jeea/jvx027


In a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents, the properties of the Laffer curve depend on whether debt or transfers are adjusted to balance the government budget constraint. The Laffer curve conditional on public debt is horizontally S-shaped. Two opposing forces explain this result. First, when government wealth increases, the fiscal burden declines, calling for lower tax rates. Second, because the interest rate decreases when government wealth increases, fiscal revenues may also decline, calling for higher taxes. For sufficiently negative government debt, the second force dominates, leading to the odd shape of the Laffer curve conditional on debt.

Item Type: Article
Language: English
Date: June 2018
Refereed: Yes
Uncontrolled Keywords: Laffer Curve, Incomplete Markets, Labor Supply, Public Debt
JEL Classification: E00 - General
E60 - General
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 20 Apr 2017 08:27
Last Modified: 02 Apr 2021 15:55
OAI Identifier: oai:tse-fr.eu:31629
URI: https://publications.ut-capitole.fr/id/eprint/23740

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