*학술대회자료*

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*Why is the shape of the Laﬀer curve for consumption tax diﬀerent from that for labor income tax?*

- Kazuki Hiraga Kengo Nutahara
- 한국재정학회(구 한국재정·공공경제학회)
- 한국재정학회 학술대회 논문집
- 2019년도 추계학술대회 논문집
- 2019.10
- 1 - 21 (21 pages)

It is well known that the equivalence between consumption and labor income taxes holds. However, recent macroeconomic studies on the Laﬀer curves (tax revenue curves) that use dynamic general equilibrium models ﬁnd that the Laﬀer curve for consumption tax might not be hump-shaped, but monotonically increas-ing, whereas that for labor income tax is hump-shaped. This study investigates the cause of the diﬀerence in the shapes of the two Laﬀer curves by decomposing the eﬀects of an increase in a tax rate on the tax base into two parts: (i) the eﬀects on the relative price of leisure (RPL), and (ii) the substitution and income eﬀects. It is shown that the ﬁrst eﬀect with respect to the consumption tax rate is completely diﬀerent from that with respect to the labor income tax rate; meanwhile, the second eﬀect is common among the taxes and depends on the functional form of the util-ity. The elasticity of the RPL from an increasing consumption tax rate is at most 1, whereas it can be inﬁnity in the case of labor income tax.

1 Introduction

2 Model

3 Main Results

4 Discussions

5 Concluding Remarks