Exploring a Laffer Curve-Type Relationship in the Romanian Context

The theory of optimal taxation emphasizes that a tax system should reduce market inefficiencies and distortions. This paper examines the relationship between tax revenue and tax burden in Romania for 2006-2022 within the Laffer curve framework. A regression model was developed to estimate the coefficients of the parabola, which are then used to determine its vertex coordinates. The vertex represents the revenue-maximizing value of the tax burden. The relationship between tax burden and total tax revenues is analyzed over a specific period, so the vertex is the revenue-maximizing point within that context. Future conditions may change, and various factors (economic growth, policy changes, etc.) could influence the revenue-maximizing level. A value of the tax burden below the vertex value (a negative deviation) could be related to under-taxation. If the situation shows a positive deviation (above the vertex value), this could be related to over-taxation. The study offers insights into Romanian tax policy and its implications. An excessively high tax burden will increase avoidance behavior, resulting in lower tax revenues. A level that is too low may not generate enough revenue to finance public goods and services. The results could be used to create measures to improve revenue collection without discouraging economic activity.