SIR - Dr Charles Smith (Letters, April 30) condemns Professor Morgan for his view that the size of the public sector will hamper the recovery and his reaffirmation of the Laffer curve
He referred to the Laffer curve
, a graph named after economist Arthur Laffer, which shows tax revenues rise to a limited extent when tax rates increase, but actually start falling if tax rates become too high.
The so-called "Laffer curve
," which demonstrated the paradox that tax cuts often produce higher tax revenues because lower taxes engender more economic productivity, has been in vogue since the Reagan era.
The Laffer Curve
, you will recall, is a graphical representation of the simple truth that above a certain point, increases in the tax rate will prove self-defeating: they will so discourage economic activity that they will cause revenue to decline.
Indeed, claims Stephen Moore in The Wall Street Journal, "the numbers are an eye-popping vindication of the Laffer Curve
Indeed, Clinton's 1997 capital gains tax cut was the driving force for late-decade budget surpluses as revenues soared from profits accruing from stock market gains and stock options, a near-perfect illustration of the Laffer curve
What they did was implement a tariff clause whose wording effectively constrained their fiscal authorities to tariff rates on the lower end of the Laffer curve
. Regardless of what the Confederate framers actually knew about the Laffer relationship, they acted as if they knew about it.
Sustainability of debt may be evaluated by using Laffer Curve
technique, developed by Sachs.
Unlike the semi-log, the constant elasticity function does not generate a Laffer curve
. Along a Laffer curve
, as the inflation tax rate (the money rate) rises, the revenue increases.
This debate over the tariff "Laffer curve
" essentially hinged on whether existing tariffs were above or below the revenue-maximizing rate, which in turn depended on the height of the tariff and the price elasticity of import demand.
Lind indicts the intellectual right for trafficking in fraud, whether supply-side economics and the Laffer Curve
in the 1980s, or school vouchers in the 1990s.
This theory was perhaps best represented by Krugman's (1989) debt-relief Laffer curve
, which demonstrated that when high default probabilities existed, reducing a country's debt burden actually could increase the expected value of the debt (see section II for a more on-depth discussion of the debt-relief Laffer curve