Date of Award

2025

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Khemraj, Tarron

Area of Concentration

Economics

Abstract

The purpose of this thesis is to provide an empirical examination of the Laffer Curve theory and its practical relevance to the U.S. economy. While data surrounding individual Tax Reforms alone is not enough to provide a sufficient conclusion on the relationship between tax rates and revenues, regression analysis will provide the necessary evidence. Through the use of two econometric regression models, data on the U.S. tax rate and U.S. cyclical GDP will be compiled over the period of 1947-2024. The first model is the Laffer Baseline model, and the second is the Corporate Profits model, these regressions will provide results on whether the concave quadratic relationship between tax rates and revenues exists. Final results show that there is a quadratic relationship present between tax rates and revenues, however it is not the concave relationship that Arthur Laffer presents in his theory. A convex relationship is determined through the first regression, which is a significant model, this suggests that tax rates are not the only factor in impacting federal revenues. The second model assessing Corporate Profits reveals the accurate relationship Arthur Laffer presents, however the literal model is insignificant. Therefore, tax policy and structure, specifically the use of Supply-Side economic policies are a major contributing factor when determining how to set an optimal tax rate that will provide the benefits that Laffer discusses in his theory.

Download

Share

COinS