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The Sufficient Statistic Approach: Predicting the Top of the Laffer Curve
We provide a formula for the tax rate at the top of the Laffer curve as a function of three elasticities. Our formula applies to static models and to steady states of dynamic models. One of the elasticities that enters our formula has been estimated in the elasticity of taxable income literature. We apply standard empirical methods from this literature to data produced by reforming the tax system in a model economy. We find that these standard methods underestimate the relevant elasticity in models with endogenous human capital accumulation.
Cite this item
Alejandro Badel & Mark Huggett, The Sufficient Statistic Approach: Predicting the Top of the Laffer Curve, Federal Reserve Bank of St. Louis, Working Papers 2015-38, 10 Nov 2015.
- D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
Keywords: Sufficient Statistic; Laffer Curve; Marginal Tax Rate; Elasticity
This item with handle RePEc:fip:fedlwp:2015-038
is also listed on EconPapers
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