The Laffer curve for high incomes

An expression for the La er curve for high incomes is derived, assuming a constant Pareto parameter and elasticity of taxable income. The peak of this La er curve is given by the well-known Saez (2001) expression. Microsimulations using Swedish population data show that the simulated curve matches the theoretically derived La er curve well, suggesting that the analytical expression is not too much of a simpli cation. Policy conclusions do not change much when income e ects are taken into account. A country-level dataset of top e ective marginal tax rates and Pareto parameters is assembled. This is used to draw La er curves for 27 OECD countries. Revenue-maximizing tax rates and degrees of selfnancing for a small tax cut are also computed. The results indicate that degrees of selfnancing range between 28 and 195 percent. Five countries have higher tax rates than the peak of the La er curve. ∗Department of Economics and Uppsala Center for Fiscal Studies, Uppsala University. Email: [email protected]. I am grateful to Spencer Bastani, Per Engström, Katarina Nordblom, Emmanuel Saez, Håkan Selin, Helena Svaleryd, Daniel Waldenström and seminar participants at the Department of Economics, Uppsala University, for their comments. Financial support from the Jan Wallander and Tom Hedelius Foundation is gratefully acknowledged.