Re: Laffer Curve

[AdmrlLocke]

In a message dated 4/18/05 3:21:40 PM, [EMAIL PROTECTED] writes:

I've been reading about Laffer's idea that there is a tendency for
revenues to increase with increased taxation up to a point where revenue
is maximized.  As one of the class notes on Caplan's site indicates, you
can derive revenue as a function of the tax rate and assuming that the
slopes of the supply and demand curves are constants not equal to zero,
you can show that the Laffer effect exists.

For example, from

    Pd = price paid by buyer
    Ps = price received by seller
    t = tax per unit = Pd - Ps.
    R = revenue = tQ
    Supply curve: Qs = a + bPs
    Demand curve: Qd = c - dPd

You can derive

    R = t(bc + da - bdt)/(b + d)

Still, a lot of people have said that the Laffer curve is bunk.  Are
there any Laffer detractors here?  If so, what must the supply and
demand curves for labor look like for R(t) to be an always increasing
(or at least never decreasing) function?

James

For what it's worth, I recall a Treasury study in the late 1980s that concluded that the tax cut of 1984 was 95% self-financing.

David