Re: Taxation system

Carl Edman (cedman@golem.ps.uci.edu)
Mon, 27 Jul 92 09:38:39 PDT

> > Ever heard of the Laffer curve ?
>

> Nope, can't say that I have. Care to elaborate?

The Laffer (named after the economist Arthur Laffer) curve is a plot
of tax revenue versus tax rates. If your tax rates are 0%, your
revenues will of course be 0 too. If your tax rates are 100%, people
won't work (why bother if you keep it all in the end anyway ?), so
your revenues will be 0 too. Somewhere in between you'll have some
revenues (hopefully), so in the simplest case the Laffer curve looks
like this (as I trust not all recipients of this message run Display
Postscript, I'll have to use ASCII....).

Tax ^

Revenue|

| ______

| / \___

| / \_

| / \__

| / \__

| / \___

| / \___

|/ \_____

+---------+---------+---------+---------+

0% 25% 50% 75% 100%

Tax rates

So in some regions you actually can _increase_ tax revenue by
lowering taxes. This is what prevents (wise) governments from jacking
up the tax rates indefinitely.

Carl Edman


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