Tax Rate Cuts and Tax Compliance—The Laffer Curve Revisited

January 1, 2008

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Format: Chicago

Tamás K. Papp, and Elöd Takáts. Tax Rate Cuts and Tax Compliance—The Laffer Curve Revisited, (USA: International Monetary Fund, 2008) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Auditing, Labor supply, Revenue administration, Tax auditing and verification, Tax return filing compliance

Keywords: Laffer curve, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/007
Stock No:

WPIEA2008007
ISBN:

9781451868692
ISSN:

1018-5941

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