Laffer Curve sighted in the wild again!

Via.

See?

Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead.

Criminal gangs and impoverished Roma communities near borders with countries where prices are lower — Serbia, Macedonia, Moldova and Ukraine — have taken to smuggling which has wiped out gains from higher excise duties.

Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third.

And:

New York\’s Oneida Indian Nation moved a cigarette-manufacturing plant to their upstate reservation to shield smokers from steep taxes that Governor David Paterson has vowed to impose.

\”By moving the plant to the Oneida homelands, the Nation is availing itself of a long-settled law that recognizes the right of Indian tribes to sell products they manufacture on their own reservations without interference from state tax laws,\” tribe officials said in a statement.

It really is possible to set tax rates so high that revenue collected falls. The ways around the taxes might be illegal (and thus evasion) or legal (and thus tax planning or tax avoidance, to taste) but we can indeed spot that Laffer Curve out there in the wild.

11 comments on “Laffer Curve sighted in the wild again!

  1. Laffer curves most often seen in the wild in our benefit system. People won’t take work where they only gain a few percent of the pay, due to benefit withdrawal. Where tax is high enough (benefit withdrawal is tax) people won’t increase their income and increase tax revenue, if the tax rate is too high. Has someone done a study on this, I wonder, lots of data out there.

  2. Interesting that gambling is banned in Pakistan and racecourse only in India, which fuels a gigantic black market, resulting in?

    obviously not the laffer curve more the idiot curve?

  3. “Tim adds..”: thanks, Tim. My question was based on the observation that all sorts of insights get attributed to modern, especially American, economists, when those insights are old, commonplace knowledge, at least among reflective people.

    Tim adds: Especially since that article linked is actually Art Laffer pointing out that the idea of the Laffer Curve most certainly didn’t start with him…..

  4. Quite. Then again he could have admitted that he learned it not from a recherche 14th century figure, but (perhaps) from A Smith. WKPD he say: “Amongst others, David Hume expressed similar arguments in his essay Of Taxes in 1756, as did fellow Scottish economist Adam Smith, twenty years later.”

    This is further support for my conjecture that all economics is either footnotes to Smith and Ricardo, or is wrong.

  5. Two ideas are important for the Laffer Curve.

    One, the revenue maximising short run best tax rate is probably quite high ~50-70%.

    Of course over the long run, that isn’t true. In the long run, the revenue maximising tax take is the same as the growth maximising growth rate. In the long run, it seems tax structure means more than tax rates, so land taxes in, NI out.

    When talking about the Laffer curve, then its important to bear in mind exactly what you mean, short term/long term, tax structure etc

  6. Marksany and LO are on the point here. Nobody denies a Laffer curve exists, the question is where it kicks in. And the fact that if you ask three leading economists where it kicks in, you get three different opinions, suggests that believing in the existence of a Laffer curve doesn’t entail opposing higher rate tax rises in the UK or US in 2010.

    Tim adds: You’d be surprised ho many people dmismiss the whole LC idea out of hand.

    R. Murphy did, for example. And he, as you know, advises on tax to a number of NGOs and unions….

  7. It seems that regardless of the question, the number of differing opinions from leading economists is about equal to the number of economists responding.
    And I don’t think that article says what you think it says.

    Tim adds: Tsk, please do get it right. The number of differeng opinions from any number, n, of economists on any point is always n plus some digit. As it was here, 6 economists gave 9 answers.

  8. Pingback: The Laffer Curve Strikes Again « International Liberty

  9. Oh come on. The laffer curve is a joke. In reality, it is a piece of tangled spaghetti, depending on which particular curve, and which bit of which curve, you look at. Take any bit of spaghetti and you will find a laffer curve, or a roller-coaster, or the shape of a middle finger, in there somewhere. But the overall relationship is very simply, he obvious one – summed up aptly (and backed by all the evidence): up is up, and down is down.

  10. Pingback: The Laffer Curve Strikes Again | Cato @ Liberty

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