Tax Rate Cuts and Tax Compliance—The Laffer Curve Revisited

Tamás Papp and Elod Takats

No 2008/007, IMF Working Papers from International Monetary Fund

Abstract: The paper shows how tax rate cuts can increase revenues by improving tax compliance. The intuition is that tax evasion has externalities: tax evaders protect each other, because they tie down limited enforcement capacity. Thus, relatively small tax rate cuts, which decrease incentives to evade taxes, can lead to increased revenues through spillovers - creating Laffer effects. Interestingly, tax rate cuts here imply increasing effective taxes. The model is consistent with what happened in Russia, and may provide basis for further thinking about tax rate cuts in other countries.

Keywords: WP; Laffer curve (search for similar items in EconPapers)
Pages: 20
Date: 2008-01-01
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Tax rate cuts and tax compliance – the Laffer curve revisited (2024)
Working Paper: Tax rate cuts and tax compliance – the Laffer curve revisited (2024)
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