Potential Laffer Curve incident spotted in the wild

That the Laffer Curve exists is a mathematical certainty. The difficult question is where is the point that tax revenue starts to fall as rates rise, where would lower rates produce more revenue? 

What complicates this is that each and every tax, in each and every different economic set up, will have a different rate at which this is true. For example, the EU's own investigation into the financial transactions tax showed that a rate of 0.01% on trades would be revenue losing. We would rather assume that an income tax, or VAT, rate of 0.01% could be raised quite substantially before it became revenue losing.

We do also have examples of where lower rates have led to higher collections. Russia did away with the Soviet era income tax system and replaced it with a 13% flat tax upon incomes - collections rose substantially. NY raised cigarette taxes so much that revenue fell. And now we have an interesting potential addition to the list:

George Osborne’s controversial tax raid on Britain’s most expensive homes has triggered a dramatic slump in stamp duty revenues.

Sales of properties worth more than £1.5million fell by almost 40 per cent last year, according to analysis of Land Registry figures provided to the Daily Mail.

This has caused the total amount of stamp duty collected by the Treasury to fall by around £440million, from £1.079billion to a possible £635.7million.


We would not insist, at this stage, that this is a pure Laffer effect. Rather more research would be needed for that. But it's most certainly a possible incident of the Curve striking back.

At which point could we just register our lack of surprise? That it would be George Osborne among Conservative Chancellors who would hit that Laffer Curve peak going the wrong way?

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An amazingly popular government policy - clearly, this must cease immediately

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