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Webnote 3301 Laffer curve LLaffer was an economic advisor to U.S. president Ronald Reagan in the 1980’s LLaffer curve shows the relationship between.

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Presentation on theme: "Webnote 3301 Laffer curve LLaffer was an economic advisor to U.S. president Ronald Reagan in the 1980’s LLaffer curve shows the relationship between."— Presentation transcript:

1 Webnote 3301 Laffer curve LLaffer was an economic advisor to U.S. president Ronald Reagan in the 1980’s LLaffer curve shows the relationship between tax rates and tax revenue arguing that cutting tax rates would have a double benefit of raising tax revenue and national output LLaffer suggested that a reduction in U.S tax rates would lead to an increase in tax revenue and supply side economists supported the concept http://www.yellowsubmarine.com Web note 241 Laffer Curve

2 Syllabus items: take a look please! Syllabus items: take a look please! 118 118 119 119 131 131 132 132 Webnote 3302 http://www.yellowsubmarine.com Web note 241 Laffer Curve

3 3 A tax rate of 0r1 maximises tax revenue because more people want to work and firms will be inclined to expand = A tax rate of 0r1 maximises tax revenue because more people want to work and firms will be inclined to expand = INCENTIVE ( see syllabus item 131) INCENTIVE ( see syllabus item 131) http://www.yellowsubmarine.com Web note 241 Laffer Curve

4 Webnote 3304 A tax rate of 0r2 would actually decrease tax revenue for government. In other words higher tax rates discourage work and output falls A tax rate of 0r2 would actually decrease tax revenue for government. In other words higher tax rates discourage work and output falls = dis INCENTIVE = dis INCENTIVE http://www.yellowsubmarine.com Web note 241 Laffer Curve

5 Webnote 3305 Critics of the Laffer curve argue that a cut in tax rates would in all probability lead to a fall in tax revenue. Critics of the Laffer curve argue that a cut in tax rates would in all probability lead to a fall in tax revenue. Idea here is based on backward bending supply curve whereby at higher wage rates workers may offer less hours of labour i.e. workers value leisure time more that additional hours at work subject of course to some minimum required standard of living Idea here is based on backward bending supply curve whereby at higher wage rates workers may offer less hours of labour i.e. workers value leisure time more that additional hours at work subject of course to some minimum required standard of living = disINCENTIVE = disINCENTIVE http://www.yellowsubmarine.com Web note 241: Backward Bending Supply Curve

6 Webnote 3306 Reading: Reading: See Glanville p.334 and McGee ‘The Good, the bad and the economist’ p.455 See Glanville p.334 and McGee ‘The Good, the bad and the economist’ p.455 End End http://www.yellowsubmarine.com Web note 241 Laffer Curve


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