The Laffer Curve exists!

His comments follow AA figures showing falling petrol and diesel sales in the first three months of 2009 produced £97.3 million, or 2 per cent, less in fuel duty income than in the same period last year.

The fall is despite a 2p a litre, or 4 per cent, rise in fuel duty on December 1, 2008.

OK, well, perhaps not all that much. There\’s a nasty little recession which might explain that.

However, the greenie logic behind ever higher fuel pries is indeed that they will make people use less fuel. And there will indeed be a point where taxes are sufficiently high per unit that the drop in units used will lead to falling total revenues. That\’s the aim of the tax, at least from a certain point of view.

Which is, of course, the Laffer Curve.

What\’s odd is that you can get exactly the same person to agree that this is indeed both the aim and the reality with petrol, with fags, but they adamantly refuse to accept that it might happen with incomes.

4 thoughts on “The Laffer Curve exists!”

  1. That the Laffer Curve exists is, surely, the entire rationale behind Pigovian taxes; they are set at such a point that behaviour is changed so as to avoid paying them.

  2. Differing behaviour between income and outgoings? Human beings not being entirely rational and all that?

  3. The question is not whether the laffer curve exists, but whether it is empirically relevant at current levels of income taxation. The most likely answer is no.

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