The laffer curve: an empirical estimation for eurozone member countries

• Autor(a) principal: Espanhol, Ruben João Fernandes
• Data de Publicação: 2014
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/9303
• topic: Laffer curve; Eurozone countries; Panel-data estimations; SUR model estimations; Curva de laffer; Países da zona eur; Estimação com dados em painel; Estimação com modelo SUR

The current economic and sovereign crisis in the Eurozone led some European governments, due mainly to outside impositions (of the IMF, European Commission, and the ECB, the troika), to increases the tax rates, with the goal of boosting tax revenues, and in that way to decrease excessive deficits, and to fight high public debt, which most countries of the Eurozone, in particular Southern Countries, face. Were these decisions the most correct? What is the relationship between tax rates and tax revenues? What is the tax rate that maximizes the revenue? In the economic literature we find in the concept of the Laffer Curve the answer for the previous questions. Using panel-data, observed between 1995 and 2011 (for direct taxes) and 2000 and 2011 (for indirect taxes), we will estimate Laffer Curves for the Eurozone countries, either for the Eurozone as a whole and also for each individual Eurozone member country. We chose the three taxes that contribute the most to the state revenue, and they are the value added tax (VAT), as an indirect tax; the corporate income tax, and the household income tax. We can conclude for the existence of a Laffer Curve in the Eurozone for VAT and for the individual income tax, but in case of the corporate income tax, we come to the opposite conclusion. In the case of Portugal the optimal tax rate for the individual income tax is 49% and for the corporate income tax is 30%.