Six revealing benefits of Laffer Curve
Laffer Curve is a depiction between the tax rates and tax revenue. Laffer Curve, the term, was first coined by renowned economist Art Laffer in 1979 and hence his invention is named after him, to pay homage to his phenomenal discoveries and research in the field of economics. At some tax rate, the tax revenue decreases with tax rates while the tax rates increases continually. Most economists showed vehemence to the idea of negative tax revenue response forged by Art Laffer. However, Laffer Curve found its relevance in the global economic research. Laffer Curve has been condemned for not being mutually exclusive thus effectively initiating inequality. However, with the progression of time there have also been several benefits recorded in favor of Laffer Curve.
Laffer Curve finds its significance with its signature simplicity. Thus, little time required is required for a congressman to grab it.
Laffer Curve, being a simple model, simply makes the witty use of supply demand analysis for the determination of elasticity parameters for Laffer effect to occur. A relative comparison can be made with estimated elasticity to estimated labor supply elasticity. This only requires a marginal tax rate of 50% in comparison to labor supply elasticity of 1 to get the Laffer effect.
The theory tells us the required parameters about which people were kept in the dark before the discovery of Laffer Curve.
As an example-the theory of investment in risky assets. If an asset is bad, so when the wealth grows, a man will not want to invest on it. Contrarily, a wealthy individual will be more cautious in his investment on the bad asset. Theory effectively pictures the risk aversion factors based on wealth fluctuations.
It ensures benefit and cost analysis which is a very vital field in the economy. Correct measurement of economic benefit and cost can be efficiently done in the lieu of the light, the systematic theory offers.
Laffer Curve not only applies to the rich population they are also favorable to the poor population across the globe. That means people with their variable income are also backed by the theory. Tax rates too high will discourage a professional, morally. If tax rate is, 100% people will be demotivated to work with wages lower than they deserve. So, it is also the case for rich people. Less annual profit will similarly hamper their enthusiasm to do more work.
Laffer Curve enlightens that tax cuts will ensure more jobs by waving revenues of any business.
Laffer Curve effectively unleashes the economic growth of the province by proposing that tax rate of 0% or 100 % will diminish the revenue to nil. On the other hand, a rate between the ranges will ensure the flourishing of revenues in the country.
The name, Laffer Curve, still brings forth some sharp opinions relating to its impact on government tax policies. Even many unorthodox politicians have gone out of their way to shame the curve, when it comes to the determination of tax rates completing disregarding the benefits of economic fairness, cost benefit analysis etc. The goal of this invention had never incurred any ill conflict among individuals but had always been the opposite. Earnestly speaking, it’s time for us to find out the attitude of any invention rather than its impact because each invention in a way has unleashed many opportunities for the society.