Does the Laffer curve exist? A review of the theoretical and applied literature, with special focus on the US and Spain

Abstract

The Laffer Curve, which illustrates the relationship between tax rates and fiscal revenue, has been a central theme in economic theory and fiscal policy since its formulation. This article provides a comprehensive review of the literature on the Laffer Curve, with a particular focus on the elasticity of the tax base as a tool for its analysis. The elasticity of the tax base refers to the sensitivity of fiscal revenue to changes in tax rates and is crucial for understanding how variations in taxation impact economic behavior and, consequently, public revenue. The study compares empirical evidence from the United States and Spain to offer a detailed perspective on how these economies respond to changes in tax rates. Through a comparative analysis, it highlights similarities and differences in the response of the tax base and the efficiency of tax collection. This article provides an integrated view of the applicability and limitations of the Laffer Curve in different national contexts, of- fering practical implications for policymakers and contributing to the debate on optimizing tax revenue.