The individual Laffer curve: evidence from the Spanish income tax

Ana Gamarra Rondinel (), José Félix Sanz-Sanz and María Arrazola
Additional contact information
Ana Gamarra Rondinel: The University of Melbourne
José Félix Sanz-Sanz: Universidad Complutense de Madrid
María Arrazola: Universidad Rey Juan Carlos

Empirical Economics, 2024, vol. 67, issue 6, No 9, 2719-2769

Abstract: Abstract This paper characterises the Laffer curve of each individual taxpayer in a schedular multi-rate income tax with income shifting. Analytical expressions for the revenue-maximising tax rate and the revenue-maximising elasticity are provided for the individual taxpayer and the aggregate population, as well as new estimates of the Elasticity of Taxable Income. Applying these to the Spanish income tax demonstrates that 44.72% (58.49%) of the taxpaying population in the non-savings tax base (savings tax base) is on the “normal” side of the Laffer curve. On average, these taxpayers are 6.59 points (24.73 points) above (below) the maximum of the Laffer curve. The fraction of total tax revenue lost through behavioural responses amounts to 53.77%. However, this fraction varies by population subgroup and decreases when we account for income-shifting responses, suggesting the presence of fiscal externalities in the Spanish PIT.

Keywords: Personal income tax; Laffer curve; Tax revenue; Elasticity of Taxable Income (search for similar items in EconPapers)
JEL-codes: H21 H24 H26 H31 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00181-024-02618-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:empeco:v:67:y:2024:i:6:d:10.1007_s00181-024-02618-8

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-024-02618-8

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().