Estimation of Laffer Curve: Evidence from Pakistan

Muhammad Irfan Latif, Haji Rahman, Hussain Ahmad, Faiz Ahmad, Muhammad Mahboob Khurshid, Muhammad Noman Shafique


Laffer curve is a tradeoff between tax cuts and tax revenues. The sketch of Laffer curve was drawn by Arther Laffer at a dinner with his friends on his napkin that reduction in taxes will increase tax revenues. Lafer curve explained that lower tax rate could encourage an additional output and it would increase income, which builds bigger tax base in an economy. In this research we have estimated the Laffer curve on the basis of Taxes on goods and services for Pakistan economy for the period of 1990 to 2016. Time series data have been collected from the world economic data base. Results explained that all the variables are significant and signs of coefficients are in accordance with the theory. Results confirm that Laffer curve is alive in Pakistan economy but its existence is in the prohibited area of Laffer curve. It is suggested that plans of taxation should be modified in such a way that maximum number of people could bring under the tax brackets. The taxation structure of the economy should ensure to lower the indirect taxes, encourage the progressive taxes and elasticity of taxation should be increased. The pattern of taxation should be encouraged after introducing some sort of incentives such as relief in the income tax and higher bank deposit rates should be realize.


Laffer Curve, Taxes on goods and services, Tax revenue, Multiple Regression, Pakistan

Full Text:



Bachvarova SE. 2005.The Debt Laffer Curve: Estimates for 1990-2005.Honors Thesis submitted in partial fulfillment of the requirements for Graduation with Distinction in Economics in Trinity College of Duke University.Duke University Durham, North Carolina.

Bunescu L, Comaniciuc C. 2013. Graphical analysis of Laffer theory for European member states.Annals of the ConstantinBrâncuşi” University of TârguJiu, Economy Series, 2.

Chakraborty L. 2015. Fiscal seigniorage “Laffer curve effect” on central bank autonomy in India.National institiute of public finance and fiscal policy NewDelhi. working paper no. 2015-156.

Fullerton D. 1980.Can tax revenue go up when tax rate go down?. Office of Tax Analysis. OTA 41. U.S. Treasury Department.

Hairault OJ, Langot F, Sopraseuth T. 2005. A Quantitative Investigation of the Laffer Curveon the Continued Work Tax: The French Case. IZA discussion paper No 1499.

Holter AH, Krueger D, Stepanchuk S. 2014. How Does Tax Progressivity and HouseholdHeterogeneity Affect Laffer Curves? Penn institute for economic research working paper. 14-015.

Isakov SK, Pekarski ES. 2015. Financial repression and Laffer curve. Basic research program working papers. 113.

LafferBA. 2004.The Laffer curve: Past, Present, and Future. The heritage foundation No 1765.

Laffer BA, Martilla JA, Watkinson WG. 2012. Corporate Income Tax Elasticity:How Republicans Can Have Lower Tax Rates and Democrats Can Collect More Tax Revenue!.Laffer center. Pacific research institute.

Lucas R E. 1990. “Supply-Side Economics: An Analytical Review.” Oxford Economic Papers. NewSeries. 42: 239–316.

Moore S. 2014.The Laffer Curve turns 40: the legacy of a controversial idea. Washington post. good/2014/12/26/4cded164-853d-11e4-a702-fa31ff4ae98e_story.html.

NutaharaK. 2013.Laffer Curves in Japan.Canon institute for global studies. Working paper no 13-007.

Oliveira F G, Costa L. 2015. The VAT Laffer Curve and the Business Cycle in the EU27: An Empirical Approach. Economic issues. 20(2).

Papp KT, Takáts E. 2008. Tax Rate Cuts and Tax Compliance-The Laffer Curve Revisited. IMF working paper 8(7).

Tatu S. 2014. An Application of Debt Laffer curve: Empirical Evidence for Romania's case. Romanian Journal of Fiscal Policy. 5(1): 29-38.

Trabandt M, Riksbank S, Uhlig H.2007. How Far Are We From The Slippery Slope? The Laffer Curve Revisited. Tilburg University and Deutsche Bundesbank.



  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
Sarhad Journal of Management Sciences by Sarhad University of Science & Information Technology is licensed under a Creative Commons Attribution 4.0 International License.
Based on a work at