Laffer Curves and Home Production

Mauri Kotamäki

Nordic Tax Journal, 2017, vol. 2017, issue 1, 59-69

Abstract: In the earlier related literature, consumption tax rate Laffer curve is found to be strictly increasing (see Trabandt and Uhlig (2011)). In this paper, a general equilibrium macro model is augmented by introducing a substitute for private consumption in the form of home production. The introduction of home production brings about an additional margin of adjustment – an increase in consumption tax rate not only decreases labor supply and reduces the consumption tax base but also allows a substitution of market goods with home-produced goods. The main objective of this paper is to show that, after the introduction of home production, the consumption tax Laffer curve exhibits an inverse U-shape. Also the income tax Laffer curves are significantly altered. The result shown in this paper casts doubt on some of the earlier results in the literature.

Keywords: Taxation; Laffer curve; Consumption; Home-production (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:vrs:notajo:v:2017:y:2017:i:1:p:59-69:n:4

DOI: 10.1515/ntaxj-2017-0004

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