Understanding through Discussion


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[qs]1) Is the shape of the curve simply an extrapolation of reasoning regarding the two extremes or something that is empirically evidenced?[/qs]

No. In fact, the evidence suggests that Laffer's crude curve resembles nothing like the actual curve.

[qs]2) If the Laffer curve is accurate where does the tipping point lie and what factors might affect this?[/qs]

In fact, the probably peak level lies somewhere around a 70-80% tax level - way above the taxes imposed in any developed nation. The evidence arising from tax increases supports this, where 1% increases in tax levels produce something like a .8-.99% increase in tax income, depending on the tax.

Note that this only applies to taxes applied over the longer term, avoidance in the short term is easy - q.v. the 50% tax rate in the UK.

[qs]3) Is the Laffer curve generally accepted as accurate by economists?[/qs]

It's generally accepted that there is a point at which increasing taxes no longer produces increases in tax income. And it's generally accepted that raising taxes has an effect on economic output. What's not at all agreed upon is how exactly these factors interact and at what levels.

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