GRAPHICAL ANALYSIS OF LAFFER'S THEORY FOR EUROPEAN UNION MEMBER STATES

Abstract

Most times the current situation of one or another country depends on the historical development of own tax system. A practical question of any governance is to determine the optimal taxation rate level, bringing to the state the highest tax revenues. A good place to start is with what is popularly known as the Laffer curve. This paper aims to determine in graphical terms the level where European economies ranks by using Laffer curve based on the data series provided by the European Commission and the World Bank. Graphical analysis of Laffer's theory can emphasize only the positioning on one or another side of point for maximum tax revenues, a position that can influence fiscal policy decisions. Conclusions at European Union level are simple. Value of taxation rate for fiscal optimal point varies from one Member State to another, from 48.9% in Denmark to 28% in Romania, with an average of 37.1% for the EU-27.

Keywords

• Laffer curve
• Tax optimum
• Taxation rate