The Laffer Curve in action

CLAPTON

Generali wrote: »

Not on income it isn't and the Laffer curve is specifically about taxes on income.

When Nigel Lawson reduced the top marginal income tax rate from 60% to 40% the tax take went up.

Do you have a proper (ecomonics based) reference paper that discusses this.

It is of course frequently referred to in newspapers and by politicians but I've not seen a proper economic analysis of the conclusion.

zappahey

gadgetmind wrote: »

Entrepreneurs are a proud breed, and tend to see themselves as creators of wealth and success for their country as much as for themselves. When their country then lashes out of them and forces them to up sticks, how much of a rush do you think they will be in to return?

If someone starts a new business outside of France, what incentive do you think France will have to offer to get them to relocate?

You seem to be saying that their love of money is so strong that they will abandon their business in the country they love but their pride is so strong that they wouldn't return when it was financially advantageous to do so.

Sounds like made up, generalising nonsense to me but if you have some concrete examples it would be good to see them.

Generali

CLAPTON wrote: »

Do you have a proper (ecomonics based) reference paper that discusses this.

It is of course frequently referred to in newspapers and by politicians but I've not seen a proper economic analysis of the conclusion.

This is interesting. I'd never come across it before you asked so thank you for pointing me in a good direction. It's fascinating to me and I hope it is to you too:

http://news.heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/15245.pdf

Page 5 and onwards might contain the sort of analysis in which you are interested although I suspect that it doesn't have the answer that you want (I think you want punitive taxes on the rich to lead to higher tax takes and better economic outcomes although I am happy to be corrected).

This is written by Prof Laffer himself although it's worth noting that the curve is named after him because he made it famous rather than because he invented it.

Enjoy!

CLAPTON

Generali wrote: »

This is interesting. I'd never come across it before you asked so thank you for pointing me in a good direction. It's fascinating to me and I hope it is to you too:

http://news.heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/15245.pdf

Page 5 and onwards might contain the sort of analysis in which you are interested although I suspect that it doesn't have the answer that you want (I think you want punitive taxes on the rich to lead to higher tax takes and better economic outcomes although I am happy to be corrected).

This is written by Prof Laffer himself although it's worth noting that the curve is named after him because he made it famous rather than because he invented it.

Enjoy!

Thanks for the reference; it will take a bit of reading.

My curiousity is indeed partly political but mainly economic.

The political bits are e.g. that the Thatcher tax changes have widely been credited with increase in tax take from the richest which is said to favour the Laffer argument.
However the period also coincided with increasing gap between the income between the richest and average which also would tend to result in a higher tax take from the richest as they gained more income (proportionately) even with no tax changes.

Of course the increase in the gap between the income of the rich and average may simply be a result of less evasion or it might be a unrelated trend or it may be that changes to the tax schemes had other macroeconomic effects or simply a world wide trend with nothing to do with our local UK circumstances.

anyway thanks for the document.

gadgetmind

zappahey wrote: »

You seem to be saying that their love of money is so strong

That isn't what I said.

Sounds like made up, generalising nonsense to me but if you have some concrete examples it would be good to see them.

I personally know of many cases of this in the UK, and within my international company we are definitely using taxation as a steer to where to expand. We also often have people switch to an office in a different country with punitive taxation (or threats of same) being a major factor in their decision to move.

the_flying_pig

Generali wrote: »

Not on income it isn't and the Laffer curve is specifically about taxes on income.

When Nigel Lawson reduced the top marginal income tax rate from 60% to 40% the tax take went up.

Your first point - not really... The exact same curve was recognised many hundreds of years ago, even BC, for all prices, not just the 'price' people have to pay for working... it's such a simple concept. There was once a bloke called Laffer who was against higher income taxes at one specific point in time, for reasons that I don't know his name stuck to the curve as applied to income taxes... But it's all the same thing.

Your second point - extremely silly to claim a causal relationship in that way. Although I suppose it is possible that a rate as high as 60% is higher than the revenue-maximisinglevel. The numbers I've seen bandied about in the past tend to be about 60-70% in various European countries.

Generali

the_flying_pig wrote: »

Your second point - extremely silly to claim a causal relationship in that way. Although I suppose it is possible that a rate as high as 60% is higher than the revenue-maximisinglevel. The numbers I've seen bandied about in the past tend to be about 60-70% in various European countries.

It's merely a statement of fact.

PaulF81

It surel will depend upon the likes of freedom of movement?

gadgetmind

PaulF81 wrote: »

It surel will depend upon the likes of freedom of movement?

Thanks to the EU, we now enjoy very high levels of freedom of movement.

Admittedly, it is harder for an entrepreneur to move an established company than it is for an individual to switch country to lower their taxation level and/or improve career prospects, but I currently seeing both happening.

Governments that rely on inertia to let them impose punitive taxation without it lowering their tax take are in for a big shock.

Hmmm, probably not as they *know* the take will go down but feel they need to do this to win votes now and care little about the future.

Generali

CLAPTON wrote: »

However the period also coincided with increasing gap between the income between the richest and average which also would tend to result in a higher tax take from the richest as they gained more income (proportionately) even with no tax changes.

Of course the increase in the gap between the income of the rich and average may simply be a result of less evasion or it might be a unrelated trend or it may be that changes to the tax schemes had other macroeconomic effects or simply a world wide trend with nothing to do with our local UK circumstances.

That's an interesting point that you make. There is clearly something up if the tax take from the rich is rising but still the rich are getting richer. I have heard Nigel Lawson described as the most redistributive Chancellor from rich to poor in British history!

Perhaps it's that the incentives to try to get richer are greater if you tax each £ of rich people less. Perhaps lower taxes encourage the rich to declare more income.

Certainly, if there was a return to 'unearned' income tax rates of 168% (i.e. for each £1 of interest you earned above a certain level you paid £1 12s7d in tax) then I'd be hiding my money from the taxman!