Laffer Curve
A Laffer Curve is a distribution function for government revenue with respect to tax rate.
- Context:
- See: Economics, Tax, Taxable Income, Trickle Down Economics.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/Laffer_curve Retrieved:2014-1-8.
- In economics, the Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue. It illustrates the concept of taxable income elasticity — i.e., taxable income will change in response to changes in the rate of taxation. It postulates that no tax revenue will be raised at the extreme tax rates of 0% and 100% and that there must be at least one rate where tax revenue would be a non-zero maximum.
The Laffer curve is typically represented as a graph which starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. The actual existence and shape of the curve is uncertain and disputed. One potential result of the Laffer curve is that increasing tax rates beyond a certain point will be counter-productive for raising further tax revenue. A hypothetical Laffer curve for any given economy can only be estimated and such estimates are controversial. The New Palgrave Dictionary of Economics reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%.[1] Although economist Arthur Laffer does not claim to have invented the Laffer curve concept,[2] it was popularized with policymakers following an afternoon meeting with Ford Administration officials Dick Cheney and Donald Rumsfeld in 1974 in which he reportedly sketched the curve on a napkin to illustrate his argument. The term "Laffer curve" was coined by Jude Wanniski, who was also present at the meeting. The basic concept was not new; Laffer himself notes antecedents in the writings of Ibn Khaldun and John Maynard Keynes.
- In economics, the Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue. It illustrates the concept of taxable income elasticity — i.e., taxable income will change in response to changes in the rate of taxation. It postulates that no tax revenue will be raised at the extreme tax rates of 0% and 100% and that there must be at least one rate where tax revenue would be a non-zero maximum.
- ↑ Fullerton, Don (2008). "Laffer curve". In Durlauf, Steven N.; Blume, Lawrence E.. The New Palgrave Dictionary of Economics (2nd ed.). p. 839. doi:10.1057/9780230226203.0922. ISBN 978-0-333-78676-5.
- ↑ Cite error: Invalid
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