Increase labour taxes, reduce capital taxes
Trabandt and Uhlig have a well-crafted new NBER working paper:
For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.
With predictable implications:
[...] lowering the capital income tax as well as raising the labor income tax results in higher tax revenue in both the US and the EU-14 (DC: EU-15 sans Lux), i.e. in terms of a “Laffer hill”, both the US and the EU-14 are on the wrong side of the peak with respect to their capital tax rates.
These results match my priors almost exactly, and I would think those of the mainstream economist too. This makes their model a good model. But I'm afraid they perfectly match the authors' priors too; this makes it a not so informative model.
I will now believe these numbers with ever-so-slightly increased certainty.
