The Horizontally S-Shaped Laffer Curve

Patrick Fève, Julien Matheron and Jean-Guillaume Sahuc

Journal of the European Economic Association, 2018, vol. 16, issue 3, 857-893

Abstract: In a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents, the properties of the Laffer curve depend on whether debt or transfers are adjusted to balance the government budget constraint. The Laffer curve conditional on public debt is horizontally S-shaped. Two opposing forces explain this result. First, when government wealth increases, the fiscal burden declines, calling for lower tax rates. Second, because the interest rate decreases when government wealth increases, fiscal revenues may also decline, calling for higher taxes. For sufficiently negative government debt, the second force dominates, leading to the odd shape of the Laffer curve conditional on debt.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvx027 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Horizontally S-Shaped Laffer Curve (2018)
Working Paper: The Horizontally s-shaped laffer curve (2017)
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:oup:jeurec:v:16:y:2018:i:3:p:857-893.

Access Statistics for this article

Journal of the European Economic Association is currently edited by Romain Wacziarg

More articles in Journal of the European Economic Association from European Economic Association
Bibliographic data for series maintained by Oxford University Press ().