Crossing Mountains: The Effect of Competition on the Laffer Curve

34 Pages Posted: 28 Jan 2014

See all articles by Hugo Pinto-de-Abreu

Hugo Pinto-de-Abreu

affiliation not provided to SSRN

Elisio Brandao

Universidade do Porto - Faculdade de Economia (FEP)

Samuel C. A. Pereira

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: January 27, 2014

Abstract

Regarding states and state-like entities as producers and taxation as a price, this paper connects the thoroughly studied impacts of the market structures in microeconomics to the controversial Laffer curve, suggesting that the outcome of the “taxation market” depends also on competition. By studying the determinants for Property Tax revenue for the 308 Portuguese municipalities, a general model that successfully explains tax revenue is developed. Evidence is found for the existence of a two-peaked Laffer curve in the sample, and various tests indicate that competition impacts – shifting but also changing – the Laffer curve, causing more competitive municipalities to maximize revenue at lower tax rates – i.e. lower prices - than those in a more monopolistic setting.

Keywords: Laffer curve, Taxation, Market Structure, Competition, Municipalities, Portugal

JEL Classification: D40, H21, H30, H73

Suggested Citation

Pinto de Abreu, Hugo and Brandão, Elísio Fernando Moreira and Pereira, Samuel C. A., Crossing Mountains: The Effect of Competition on the Laffer Curve (January 27, 2014). Available at SSRN: https://ssrn.com/abstract=2386136 or http://dx.doi.org/10.2139/ssrn.2386136

Hugo Pinto de Abreu (Contact Author)

affiliation not provided to SSRN

Elísio Fernando Moreira Brandão

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

Samuel C. A. Pereira

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Porto
Portugal

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