Spotting the Laffer Curve in the Wild

Now, we all know that the Laffer Curve exists, that\’s a simple piece of maths. Where all the argument comes in is at what tax rates do we start to see Laffer Curve effects?

Such effects can go either way: a fall in tax rates leading to higher tax collections, or a rise in tax rates leading to lower such revenues. The Guardian tells us that we\’ve actually spotted one such Laffer effect in the wild:

The last time a windfall tax was imposed on North Sea operators in 2005, it brought short-term gains to the Treasury but led to a slump in drilling activity that ultimately cut tax revenues.

Interesting, no?

1 thought on “Spotting the Laffer Curve in the Wild”

  1. IIRC, this was not a windfall tax as such, they hiked the North Sea Corporation Tax surcharge permanently from 10% to 20% in 2005.

    Ergo, canny oil companies deferred expenditure by a year, so their 2005 taxable was overstated (on which they paid 40%) and their 2006 taxable was understated (on which they paid 60%). Sooner or later this will even out. This is all according to Art Laffer’s great article on tax policy – when tax rates are decreasing, people will defer declaring income and/or speed up capital expenditure (on which AFAIAA North Sea companies get 100% first year allowances) and if tax rates are increasing, there is an initial boost, but then the boost tails off very quickly.

    Link porn:

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