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User Name Thread Name Subject Posted
GUEST,TIA BS: Revenue Neutral? Explain Please (47) RE: BS: Revenue Neutral? Explain Please 24 Oct 12


PDQ's first post seems to be citing the Laffer Curve (whether he knows it or not) that predicts that total government revenue can be increased by lowering taxes...because lowering taxes increases economic actvity.
All true.
But the Laffer curve is parabolic - not monotonic.
That means there is an optimum tax rate that maximizes government revenue.
The Righties always fail to see this important point - which can be nicely illustrated by extrapolating to the end of the spectrum...if we cut taxes to zero, will this increase government revenues?
Of course not.
So what is the optimum point, or the maximum of the Laffer curve?
Well, it is different for different countries and time periods, but modern academic studies (peer-reviewed) come up with a range of values...with a median of about 70% *
So, do we really want to cite Laffer curve reasoning PDQ?
Really?
Okay by me.
But I bet you are not so enthusiastic all of a sudden.



* See Fullerton, Don (2008) "Laffer curve". In Durlauf, Steven N.; Blume, Lawrence E.. The New Palgrave Dictionary of Economics (2nd ed.)


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