When is the Laffer Curve for Consumption Tax Hump-Shaped?
Kazuki Hiraga and
No 16-002E, CIGS Working Paper Series from The Canon Institute for Global Studies
This paper characterizes the shape of the Laffer curve for consumption tax. It is shown that the Laffer curve for consumption tax can be hump-shaped if the utility function is additively separable in consumption and labor supply. Conversely, it cannot be hump-shaped if the utility function is non-separable as reported by previous researchers. It is also shown that the difference in the utility functions has quantitatively significant effects on the peak tax rates of the Laffer curves for labor and capital income taxes.
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