Estimating the Laffer tax rate on capital income: cross‐base responses matter!

Marie‐Noëlle Lefebvre, Etienne Lehmann and Michaël Sicsic

Scandinavian Journal of Economics, 2025, vol. 127, issue 2, 460-489

Abstract: We express the Laffer tax rate on capital income using direct elasticity (capital income response) and cross‐elasticity (labor income response) to the net‐of‐tax rate on capital income. We estimate these elasticities using salient capital tax reforms that took place in France between 2008 and 2017. We use graphical analysis and instrumental variable estimates to confirm significant responses of capital and labor incomes. Both methods lead to positive labor responses, contrary to income‐shifting predictions. Omitting cross‐elasticity suggests a Laffer rate around 57 percent. However, incorporating our positive cross‐elasticity estimate lowers the rate to about 43 percent, taking labor income tax into account.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/sjoe.12578

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:127:y:2025:i:2:p:460-489

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0347-0520

Access Statistics for this article

Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten

More articles in Scandinavian Journal of Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().