Taxation in Colombia: Theoretical and empirical approximation of the Laffer Curve

Abstract

This paper estimates the Laffer curve through a comparative statical analysis and an econometric exercise. Starting from a microeconomic specification, it first analyzes the distortion caused by an indirect tax and the welfare implications of maximizing tax collection.Then, using data on real per capita tax revenue and the tax rate, an estimate of an econometric model to calculate the optimal tax rate in Colombia is made. The results show that Laffer's postulates are proven with an optimal rate of 32% and suggest that the government has a margin of almost 12 percentage points.