The Laffer Curve in the Czech Republic

Laffer curve, in a simple way, represents relationship between tax tariff and tax income. In the Czech Republic, last years were characterized by numerous interventions in the tax policy mix as politicians tried to fix public deficit. This fact enables us to create the Laffer curve with Czech data which are gained from database of the Czech Statistical Office and Eurostat. The first part of our paper contains summary of papers on this topic. In this part, there are presented periods of economic performance increase which is connected with tax cut. For our analysis we use time series of tax tariffs, tax income and GDP. We explore the relationship between tax tariffs and tax quota, where tax quota means relative tax income which is defined as a tax income divided by GDP. More specifically, we deal with relationship among implicit tax rate on consumption, implicit tax rate on labor, implicit tax rate on capital and simple corporate tax tariff. In addition, results of our analysis are compared with cross-sectional data analysis which covers Europeans countries data from 2010. It was found out that regression of the Czech tax quota on tax rates on consumption, labor and capital is positive. On the other hand, regression relationship between Czech tax quota and corporate tax rate is negative when the last three years are excluded. But interpretation of this fact is not unambiguous and it is discussed in detail. Results interpretation is limited due to macroeconomic nature of data (structural effects are not considered), macroeconomic cycle position and relatively short time series because the Czech Republic has reached only one business cycle during its existence since 1993.