Atl Econ J (2018) 46:137–138 https://doi.org/10.1007/s11293-017-9564-4 ANTHOLOGY Mark Gius Published online: 29 December 2017 International Atlantic Economic Society 2017 JEL E00 E62 Since the mid-1970s, there has been discussion regarding the relationship between high marginal tax rates and tax revenues. According to the Laffer Curve, there is a tax rate at which tax revenues are maximized. This curve implies that at low marginal tax rates, tax revenues are an increasing function of tax rates, while at high marginal rates, tax revenues are a decreasing function of tax rates. It is assumed that, at high marginal rates, this inverse relationship occurs because high tax rates may stifle economic activity and reduce the supply of labor. This theory has been the underpinning for many tax reduction proposals and policies. Regarding research on the relationship between tax rates and tax revenue, most studies have examined the impact of tax rates on tax revenue by looking at labor supply elasticity (Feldstein, Journal of Political Economy, 1995; Macurdy et al., Journal of Human Resources, 1990; Lindsey, Journal of Public Economics, 1987). If labor supply is elastic in response to a change in tax rates, then income may decline when tax rates increase. Macurdy et
Atlantic Economic Journal – Springer Journals
Published: Dec 29, 2017
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