Estimating Laffer Curve for Profit Tax in Selected Jordanian Companies

Sai’d M. Al-Tarawnih

Abstract


This study aims to analyze the relationship between tax rate and tax receipts, it also aims to determine the optimal tax rate through estimating laffer curve. For that, the study used data for 36 Jordanian companies for 1980-2004 period. On contrast to previous literature that estimate laffer curve on macro level, this study estimates laffer curve on micro level.
The optimal tax rate obtained after estimating laffer curve through two steps: in the first, we assure data stationarity by using unit root test. In the second step, OLS was employed. The result revealed that the actual tax rate is less than the optimal tax rate. This means that the government could raise profit tax rate, especially for bank and insurance companies, to increase tax receipts. The results also showed that the actual tax rate is approximately equal among service and productive sectors (industry). This may require restructured tax rates among sectors towards encouraging productive sector, since Jordan economy characterized by service sector dominances.

Keywords


Laffer Curve, Optimal Tax Rate, Tax Policy, Actual Tax Rate.

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