Tax Optimization in the European Union: A Laffer Curve Perspective

Thais Sentinelo, Mário Queirós, José Manuel Oliveira and Patrícia Ramos ()
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Thais Sentinelo: ISCAP, Polytechnic of Porto, Rua Jaime Lopes Amorim s/n, 4465-004 São Mamede de Infesta, Portugal
Mário Queirós: CEOS.PP, ISCAP, Polytechnic of Porto, Rua Jaime Lopes Amorim s/n, 4465-004 São Mamede de Infesta, Portugal
José Manuel Oliveira: Faculty of Economics, University of Porto, Rua Dr. Roberto Frias, 4200-464 Porto, Portugal
Patrícia Ramos: CEOS.PP, ISCAP, Polytechnic of Porto, Rua Jaime Lopes Amorim s/n, 4465-004 São Mamede de Infesta, Portugal

Economies, 2025, vol. 13, issue 12, 1-29

Abstract: This study explores the applicability of the Laffer Curve in the context of the European Union (EU) by analyzing the relationship between taxation and fiscal revenue across personal income tax (PIT), corporate income tax (CIT), and value-added tax (VAT). Utilizing a comprehensive panel data set spanning 1995 to 2022 across all 27 EU member states, the research also integrates the Bird Index to assess fiscal effort and employs advanced econometric techniques, including the Hausman Test and log-quadratic regression models, to capture the non-linear dynamics of the Laffer Curve. The findings reveal that excessively high tax rates, particularly in some larger member states, may lead to revenue losses due to reduced economic activity and tax evasion, highlighting the existence of optimal tax rates that maximize revenue while sustaining economic growth. By estimating threshold tax rates and incorporating the Bird Index, the study provides a nuanced perspective on tax efficiency and fiscal sustainability, offering evidence-based policy recommendations for optimizing tax systems in the European Union to balance revenue generation with economic competitiveness.

Keywords: Laffer curve; European Union; bird index; fiscal policy; tax optimization (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:13:y:2025:i:12:p:359-:d:1810991

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