Tax Aversion, Laffer Curve, and the Self-financing of Tax Cuts

Soldatos, Gerasimos T. (2015): Tax Aversion, Laffer Curve, and the Self-financing of Tax Cuts. Published in: Applied Economics and Finance , Vol. 2, No. 2 (May 2015): pp. 14-18.

Abstract

High taxation is found to lead not to less labor supply but to more tax evasion and/or black labor. Investigating next what this implies for the course of the tax revenue and subsequently for the shape of the Laffer curve, this curve is found to change with the tax induced change of taxpayer preferences over tax compliance and tax aversion. Hence, the relevant Laffer curve when contemplating tax cuts should be the one after the last tax increase and cannot thereby be fully self-financed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Laffer curve, Tax evasion/black labor, Self-financing tax cuts
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply

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