The Laffer Curve In Theory And In Practice By Lee

by John Hawkins | October 11, 2005 8:22 am

The Laffer Curve in theory[1].

The Laffer curve, popularized and promoted by economist Arthur Laffer and often used to justify tax cuts, is intended to show that government can maximize tax revenue by setting a tax rate at the peak of this curve and that raising taxes further actually decreases revenue. The idea is clearest at both extremes of taxation—zero percent and one-hundred percent—where the government collects no revenue. At one extreme, a 0% tax rate means the government’s revenue is, of course, zero. At the other, where there is a 100% tax rate, the government collects zero revenue because (in a “rational” economic model) taxpayers have no incentive to work or they avoid taxes, and the government collects 100% of nothing. Somewhere between 0% and 100%, therefore, lies a tax rate percentage that will maximize revenue.

The Laffer Curve in practice[2].

STAY-AWAY motorists have left the council with an £800,000 headache after shunning parking in the city centre.

Thousands fewer drivers have been using pay-and-display parking meters in the Capital in recent months. …

[T]he number of drivers using pay and display machines fell dramatically in the four months since April 1. Councillors have been warned that if the trend continues they will collect £780,000 less than they expected.

The council raised hourly charges in many city centre streets to £1.60 from £1.20 last year. …

Councillor Allan Jackson, the Conservative transport spokesman, said he was not surprised by the problem.

“If you have a dramatic increase in parking charges, then demand starts to fall away,” he said.

“The retail industry in the centre is really suffering because people are now driving miles away to find free parking.

“The ruling Labour group have made it impossible to get into the city centre.

“The Central Edinburgh Traffic Management scheme is a shambles. The council has killed the goose that laid the golden egg.”

Ah, the joys of socialism. Here we see just the latest example of the undeniable proof that you cannot keep raising taxes with the expectation of increasing revenue.

This content was used with the permission of Lee from Right Thinking From The Left Coast[3].

  1. in theory:
  2. in practice:
  3. Right Thinking From The Left Coast:

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