A Steeper slope: the Laffer Tax Curve in Developing and Emerging Economies
Résumé
In comparing the tax burden between developed and developing economies, we argue that the Laffer curve is sensitive to two factors, namely the size of underground economic activities and tax collection costs. The baseline model exhibits counter-intuitive results for developing and emerging economies. Insofar as we find that they are able to extract higher tax rates and revenues in comparison with developed countries. The differences are due to the values computed for structural parameters and steady-state variables. However, when the share of underground activities is taken into account, the Laffer curve is pushed downward, while tax collection costs shift the peak rate to the left.