研究報告書

The Laffer Curve, the Elasticity of Taxable Income, and the Tax Revenue Elasticity

eng

比較経済研究所ワーキングペーパー

208

1

17

2018-01-25

Version of Record

統合政府による一般均衡動学モデルの作成および日本の財政・金融政策の適用;1

In this paper, the authors use a simple dynamic general equilibrium model to study the relationship between tax deductions and three elasticities: the elasticity of the Laffer curve (the Laffer elasticity, hereafter), the elasticity of taxable income (ETI), and the income elasticity of tax revenue (the tax revenue elasticity). the authors first show a decomposition of the Laffer elasticity, which consists of the ETI and the tax revenue elasticity. In the case with proportional income tax without deduction and lump-sum social security tax, the tax revenue elasticity is equal to unity, and we obtain a simple relationship between the Laffer elasticity and the ETI. This decomposition indicates that each elasticity, which was investigated independently is closely related each other. The authors then calculate the analytical solutions of these elasticities with respect to labor and capital income under the steady state in the general equilibrium model with exogenous deduction and a social security tax. Since the solution in the model is too complex to analyze its features, the authors conduct a numerical simulation under plausible parameter values that are consistent with the results from Japanese data. The simulation shows that deduction can change these elasticities. Deduction shifts the Laffer curve and decreases the tax rate that maximizes the tax revenue. Further, deduction shifts the ETI upward. Therefore, the authors conclude that the theoretical research on public finance, especially tax analyses, should consider deduction in the model.

Working Paper