Saturday, May 4, 2013

4/5/2013: Corporate tax rate Laffer Curve

A very interesting, albeit not too rigorous (econometrically) exercise on the relationship between corporate tax rates and corporate tax revenues (the Laffer Curve):

Worth a read.

Top of the line conclusion: ex-Norway, " a 5% level of significance, the equation is significant, with a prob-value of 1.4%, and all but one of the coefficients are significant, and the coefficient on the squared term has a prob value of 11.6%. The signs all go the right way, and the intercept is near zero."

So: "It looks like there is some validity to the idea that as marginal corporate tax rates rise, so do corporate taxes as a percentage of GDP, until the taxes get too high. I didn’t test anything else.  With both equations we learn two ideas:
  • The tax take tops out at a 30% marginal rate
  • You don’t give up much if you set the marginal rate at 20%"

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