The Laffer Curve is a bit of a myth which relies upon fixed exchange rate, fixed amount of money thinking. That doesn't apply in the real world. In a floating

The Laffer Curve is a bit of a myth which relies upon fixed exchange rate, fixed amount of money thinking. That doesn't apply in the real world. In a floating exchange rate system with a financial system, such as the one Japan has, the currency is essentially a closed system. Yen can't go anywhere else, and you can't use it for anything real outside of Japan. That means that government spending is matched by the sum of taxation + non-government saving, and it is the spending that causes the taxation and saving, not the other way around. What the curve says then is that people net save less in the middle of the curve - which generally means they are borrowing too much because they are not earning enough to maintain their standard of living.