<abstract xmlns="http://www.w3.org/1999/xhtml"><p>In the earlier related literature, consumption tax rate Laffer curve is found to be strictly increasing (see <xref ref-type="bibr" rid="j_ntaxj-2017-0004_ref_024_w2aab3b7c29b1b6b1ab2ac24Aa">Trabandt and Uhlig (2011)</xref>). In this paper, a general equilibrium macro model is augmented by introducing a substitute for private consumption in the form of home production. The introduction of home production brings about an additional margin of adjustment – an increase in consumption tax rate not only decreases labor supply and reduces the consumption tax base but also allows a substitution of market goods with home-produced goods. The main objective of this paper is to show that, after the introduction of home production, the consumption tax Laffer curve exhibits an inverse U-shape. Also the income tax Laffer curves are significantly altered. The result shown in this paper casts doubt on some of the earlier results in the literature.</p></abstract>

In the earlier related literature, consumption tax rate Laffer curve is found to be strictly increasing (see Trabandt and Uhlig (2011)). In this paper, a general equilibrium macro model is augmented by introducing a substitute for private consumption in the form of home production. The introduction of home production brings about an additional margin of adjustment – an increase in consumption tax rate not only decreases labor supply and reduces the consumption tax base but also allows a substitution of market goods with home-produced goods. The main objective of this paper is to show that, after the introduction of home production, the consumption tax Laffer curve exhibits an inverse U-shape. Also the income tax Laffer curves are significantly altered. The result shown in this paper casts doubt on some of the earlier results in the literature.

Laffer Curves and Home Production

Nordic Tax Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Laffer Curves and Home Production"}

In the earlier related literature, consumption tax rate Laffer curve is found to be strictly increasing (see Trabandt and Uhlig (2011)). In this paper, a...

Laffer Curves and Home Production

Article Category: Article

Published Online: Jun 23, 2017

Page range: 59 - 69

Received: Dec 17, 2016

Accepted: Mar 03, 2017

DOI: https://doi.org/10.1515/ntaxj-2017-0004

Keywords
Taxation, Laffer curve, Consumption, Home-production

© 2017 M. Kotamäki

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Laffer Curves and Home Production

Article Category: Article

Published Online: Jun 23, 2017

Page range: 59 - 69

Received: Dec 17, 2016

Accepted: Mar 03, 2017

DOI: https://doi.org/10.1515/ntaxj-2017-0004

KeywordsTaxation, Laffer curve, Consumption, Home-production

© 2017 M. Kotamäki

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Taxation, Laffer curve, Consumption, Home-production