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

Marie‐Noëlle Lefebvre, Etienne Lehmann () and Michaël Sicsic ()
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Marie‐Noëlle Lefebvre: ESPI2R - Laboratoire ESPI2R Research in Real Estate [Paris] - ESPI - Ecole Supérieure des Professions Immobilières, CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas
Michaël Sicsic: CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas

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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: 2024-11-07
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Published in Scandinavian Journal of Economics, 2024, ⟨10.1111/sjoe.12578⟩

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Related works:
Working Paper: Estimating the Laffer tax rate on capital income: cross‐base responses matter! (2024)
Working Paper: Estimating the Laffer Tax Rate on Capital Incomes: Cross-base Responses Matter! (2023)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-base Responses Matter (2023)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter! (2023)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-base Responses Matter! (2023)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter! (2022)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-base Responses Matter! (2022)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter ! (2022)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter ! (2022)
Working Paper: Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter! (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04801281

DOI: 10.1111/sjoe.12578

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