Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


The Laffer Curve

The tale tells that Arthur B. Laffer sketched his famous curve on a napkin during a lunch with Jude Wanniski, Donald Rumsfeld and Dick Cheney. At that time, he surely did not imagine the renown that will follow this day of December 1974. The Laffer curve relates for each tax rate the expected total tax revenues. For low rates, tax rate and tax revenues move in the same way. But, as rates increase, this relation works in the opposite direction: higher tax rate produces smaller tax revenues. Hence, beyond this "maximum tax rate" the disincentive" effect of taxation is overwhelming. Nonetheless, this maximum rate is not empirically defined: it depends on place, time, circumstances, etc. The following file does not pretend to be exhaustive. Its goal is to introduce key arguments about Laffer Curve.

Introduction/Definitions

Laffer Curve: quick definition by Investopedia.com

Laffer Curve: quick definition by amosweb.com

Laffer Curve: detailed definition by wikipedia.org

Laffer Curve and context in US history by encyclopedia.thefreedictionary.com

Arthur B. Laffer: professional biography by Barber & Associates

Anecdote: Laffer’s ability to present his ideas simply by Online Learning Center

Fiscal Analysis

"Public Spending, Transfers and the Laffer Curve" by Zsolt Becsi (Federal Reserve Bank of Atlanta & Louisiana State University, April, 2002 - pdf)

"Revenue Maximizing Taxation is Not Optimal" by Jim Saxton (Joint Economic Committee, United States Congress - July, 1997 - pdf)

"Taxes, Revenues, and the "Laffer Curve" by Jude Wannisky (The Wall Street Journal - June, 1978)

Studies & Mathematical Modelling

"Why Fairness Matters: A New Look at the Laffer Curve and the Displacement Loss From Tax Evasion" by Filip Palda (Ecola Nationale d’Administration Publique, Montreal, Québec - August, 2001 - pdf)

"Evidence on the high-income Laffer curve from six decades of tax reform" by Austan Goolsbee (University of Chicago, September, 1999 - pdf)

"Green Tax Refrom and the Laffer curve in labour market models: A brief note" by Thomas Ziesemer (MERIT, 2003 - pdf)

"Explosive hyperinflation, inflation tax Laffer curve and modeling the use of money" by Maria-José Gutiérrez & Jesus Vasquez (pdf)

Opinions

"Revisiting and Expanding the Laffer Curve" by Tibor R. Machan (strike-the-root.com - March 18, 2004)

"You must be having a Laffer" by Richard Adams (guardian.co.uk - January 22, 2004)

"Dear Dr. Dollar" by Judith Walker (dollar & sense .org, December, 2003)

"Laffer’s Laugher" by Bill Mann (humour on www.fool.com ...)

Books & Articles

"Supply Side Tax Policy: Its Relevance to Developing Countries" by Ved P. Gandhi, 1988, International Monetary Fund, ISBN 0939934914

"Politics, Time, and the Laffer Curve" by James M. Buchanan & Dwight R. Lee, Journal of Political Economy, August 1982, volume 90, Issue 4, pp. 816-819.

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