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> If you make the tax too high it starts discouraging the behavior you're taxing, which can paradoxically reduce overall tax revenue. The Law of Supply and Dem
by WalterBright 5mo ago
> If you make the tax too high it starts discouraging the behavior you're taxing, which can paradoxically reduce overall tax revenue.
The Law of Supply and Demand is not a paradox.
- aerhardt 5mo agoYou could maybe somehow relate it to supply and demand dynamics, but the idea that that higher taxes can start reducing receipts after a certain point is widely credited to Laffer (although apparently there are signals of others saying similar things throughout the history of economics). The Laffer model displays an inverted U curve.
- WalterBright 5mo agoThe Laffer curve is a result of the Law of Supply and Demand. It's no different than increasing the price of X causes the sales of X to go down.
- aerhardt 5mo agoClassical supply and demand models do not show that increasing the price of x causes quantities to first go up then down after a certain inflection point… You could probably make the relationship through utility rather or a proxy model (you can model anything with enough imagination in economics) but to call it “the result of” as if it is immediately related is not accurate. It is apparent at first sight when you compare the curves…
- tekne 5mo agoWait... yes they do. If I raise the price of my product, less people will buy it but I'll make more profit per-unit -- so the amount of money I make is an inverted U with price on the x axis and money on the y axis, and I should set the price at the inflection point.