Table of Contents

A Handbook of Alternative Theories of Public Economics

A Handbook of Alternative Theories of Public Economics

Elgar original reference

Edited by Francesco Forte, Ram Mudambi and Pietro Maria Navarra

This comprehensive and thought-provoking Handbook reviews public sector economics from pluralist perspectives that either complement or reach beyond mainstream views. The book takes a comprehensive interdisciplinary approach, drawing on economic elements in the fields of philosophy, sociology, psychology, history and law.

Chapter 4: The Laffer curve muddle

Vito Tanzi

Subjects: economics and finance, austrian economics, history of economic thought, public choice theory, public finance, public sector economics, politics and public policy, public choice

Extract

The 'supply-side revolution' that characterized the period around 1980, when Margaret Thatcher and Ronald Reagan assumed the political leadership of the UK and the USA, had, as one of its keystones, the 'Laffer curve', a curve that became widely known to both economists, policymakers and even many citizens, and that became one of the most frequently mentioned concepts in economics. It made its originator, the conservative economist Arthur Laffer, a household name in both economic and political circles. Laffer had been influenced, in his thinking on taxes, by the work of Robert Mundell, a Canadian economist, who has occasionally been referred to as the 'father' of the supply-side revolution, and who later won the Nobel Prize in economics. Though Laffer does not seem to have a clear recollection of the event, it has been reported that the Laffer curve had its birth at a 1974 luncheon, in a Washington restaurant, when Laffer drew it on a cocktail napkin, to illustrate the effect that high tax rates might have on tax revenue to the other participants at the luncheon, participants that included Dick Cheney, Donald Rumsfeld, Grace-Marie Arnett and Jude Wanniski, all influential and conservative individuals. The Laffer curve was popularized by Jude Wanniski who was then a reporter at the The Wall Street Journal, and who later authored a best-selling book on the supply-side revolution (see Wanniski, 1978).

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