Identifying laffer bounds : a sufficient-statistics approach with an application to Germany
Title: Identifying laffer bounds : a sufficient-statistics approach with an application to Germany
Citation: Scandinavian journal of economics, 2016, Vol. 118, No. 4, pp. 646-665
We derive a simple sufficient-statistics test for whether a nonlinear tax-transfer system is second-best Pareto efficient. If it is not, then it is beyond the top of the Laffer curve and there exists a tax cut that is self-financing. The test depends on the income distribution, extensive and intensive labor supply elasticities, and income effect parameters. A tax-transfer system is likely to be inefficient if marginal tax rates are quickly falling in income. We apply this test to the German tax-transfer system, and we find that the structure of effective marginal tax rates is likely to be inefficient in the region where transfers are phased out.
Version of Record online: 15 NOV 2016
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