Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries

Brill, Alex; Hassett, Kevin A.

Download This Paper

Open PDF in Browser

Add Paper to My Library

Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries

AEI Working Paper #137

19 Pages Posted: 20 Mar 2013

See all articles by Alex Brill

Kevin A. Hassett

American Enterprise Institute (AEI)

Date Written: July 31, 2007

Abstract

Corporate tax rates among industrialized nations have been declining steadily since the mid 1980s. Theories of globalization, capital mobility and tax competition have been proposed to explain these changes. Less attention has been paid to the changes in corporate tax receipts during this period and their relationship to tax rates. This note explores these changes and finds, similar to Clausing (2007), strong statistical evidence of a Laffer curve in the international corporate tax data. This conclusion remains even when significant potential outlier countries, such as Ireland, Switzerland and Norway, are excluded from the sample. We extend her work by exploring the time variation in the revenue maximizing corporate income tax rate from 1980 to 2005. We find robust evidence that a Laffer curve has existed in the corporate tax sphere throughout most of our sample period. It is not merely a recent phenomenon. We also find that the revenue maximizing corporate tax rate was about 34 percent in the late 1980s, and that this rate has declined steadily to about 26 percent for the most recent period. In addition, we confirm our finding when using combined central and sub-central (i.e. federal plus average state) tax rates.

Suggested Citation: Suggested Citation

Brill, Alex and Hassett, Kevin A., Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries (July 31, 2007). AEI Working Paper #137, Available at SSRN: https://ssrn.com/abstract=2235697