Crossing Mountains: The Effect of Competition on the Laffer Curve

Hugo Miguel de Oliveira Cruz Pinto de Abreu (), Elísio Fernando Moreira Brandão () and Samuel Cruz Alves Pereira ()
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Hugo Miguel de Oliveira Cruz Pinto de Abreu: University of Porto - Faculty of Economics
Elísio Fernando Moreira Brandão: University of Porto - Faculty of Economics
Samuel Cruz Alves Pereira: University of Porto - Faculty of Economics

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: Regarding states and state-like entities as producers and taxation as a price, this paper connects the thoroughly studied impacts of the market structures in microeconomics to the controversial Laffer curve, suggesting that the outcome of the “taxation market” depends also on competition. By studying the determinants for Property Tax revenue for the 308 Portuguese municipalities, a general model that successfully explains tax revenue is developed. Evidence is found for the existence of a two-peaked Laffer curve in the sample, and various tests indicate that competition impacts – shifting but also changing – the Laffer curve, causing more competitive municipalities to maximize revenue at lower tax rates – i.e. lower prices - than those in a more monopolistic setting.

Keywords: Laffer curve; Taxation; Market Structure; Competition; Municipalities; Portugal (search for similar items in EconPapers)
JEL-codes: D40 H21 H30 H73 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-01
New Economics Papers: this item is included in nep-pbe
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