Visual representation of Laffer curve factoring in implications of capital outflow

Maria O. Kakaulina

Abstract


The article examines the problem of Laffer curve visualization. The purpose of the article is to propose a visual representation of the curve that takes into account the effects of capital outflow. The following research methods were used in the course of the research: historical method, comparative and critical analysis, graphical method. The author analyzes existing methods of the graphical representation of the curve drawin upon the interpretation of the original theoretical assumptions used for building a coordinate plane and taking into account additional factors (inflation, underground economy etc.). The author defines conditions for capital outflow and, as a result, for tax migration. The author proposes her own interpretation of the term “tax migration”, listing the key reasons for its occurrence. A variant of Laffer curve visualization in different coordinate planes has been developed, factoring in tax migration. The obtained results made it possible to establish a range of permissible changes to tax rates within which government tax revenue increases. The time frame in which tax revenue grows is different, depending on the dynamics of the tax rates.

Highlights

  1. When carrying out tax reforms in a country, governments must start by empirically calculating a range of recommended changes to the tax burden, in this case tax policy might result in higher tax revenues
  2. It is not expedient to reduce the tax burden unless there is a goal to encourage production rather than to earn more revenue for the treasury because in the future the concessions will by no means result in a matching increase in tax revenue
  3. In order to use the Laffer curve as a tool of analysis it is necessary to specify the conditions for its application and its graphical representation in each case

For citation

Kakaulina M. O. Visual Representation of Laffer Curve Factoring in Implications of Capital Outflow. Journal of Tax Reform, 2017, vol. 3, no. 2, pp. 103–114. DOI: 10.15826/jtr.2017.3.2.034

Article info

Received May 28, 2017; accepted July 4, 2017


Keywords


Laffer curve; tax burden; tax revenue; tax migration; capital outflow; open economy; tax resident; graphical interpretation; income effect; substitution effect

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References


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DOI: http://dx.doi.org/10.15826/jtr.2017.3.2.034

Copyright (c) 2017 Maria O. Kakaulina

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