Laffer Curves for Hungary

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.