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Laffer Curves for Hungary

Author

Listed:
  • Péter Gábriel

    (Magyar Nemzeti Bank)

  • Lóránt Kaszab

    (Magyar Nemzeti Bank)

Abstract

The study uses a general equilibrium model calibrated for the Hungarian economy to estimate the Laffer curve of the labour tax rate. According to the results, the tax rate maximising budget revenues in the medium term is 55 per cent, while based on the model version taking into account the accumulation of human capital and capturing the longer-term effects of a tax cut, it is 40 per cent. The simulations showed that the self-financing rate of the reduction of the labour tax rate from its pre-crisis level to the level in 2011 is roughly 80 per cent over the medium term and that it is fully self-financing in the longer run. In the case of additional tax cuts, the self-financing rate diminishes somewhat in line with the lower tax rate at the outset, but remains high.

Suggested Citation

  • Péter Gábriel & Lóránt Kaszab, 2019. "Laffer Curves for Hungary," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 18(4), pages 55-76.
    • Handle: RePEc:mnb:finrev:v:18:y:2019:i:4:p:55-76
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    File URL: https://en-hitelintezetiszemle.mnb.hu/letoltes/fer-18-4-st3-gabriel-kaszab.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Laffer curve; fiscal policy; labour tax rate; tax cut; human capital; self-financing;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H0 - Public Economics - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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