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Laffer Curve |
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Laffer curve A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer. Laffer Curve An upside down parabola on a chart referring to a theoretical optimal tax rate that will maximize government revenues. The theory behind the Laffer curve states that there is a certain point, known as T*, at which a government collects the greatest possible amount in taxes. If taxes are lower than T*, the government collects less because taxpayers are not required to pay. If it is higher than T*, people have an incentive to work less because more of their money goes to the government and, as a result, the government collects less. Economists disagree about whether the Laffer curve is true, but even supporters agree that T* is only an approximation. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| But it makes sense if you consider the Laffer Curve effect. Hong Kong is an almost perfect example of the Laffer Curve in action--low tax rates generate high rates of real economic growth, leading to increased revenues which can be used for social welfare while maintaining low tax rates. Irving Kristol's protege Jude Wanniski, the godfather of supply-side economics, used an AEI fellowship to write his 1978 book The Way the World Works, which promoted the dubious Laffer Curve, and its purported proof that tax cuts lead to more net government revenue. |
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