Thursday, May 22, 2008

Hauser's Law in taxation

Look at below graph first (h/t to wsj article, "You Can't Soak the Rich"):

I am amazed by the fact that no matter what tax rates are, tax revenue always remains at around 19.5% of GDP (post WWII). Laffer curve would help to explain this mysterious finding: when government increases tax rate, it's supposed to discourage incentives to work and invest, so GDP shrinks; when government lowers tax rate, the opposite is true and GDP increases. So on average, tax revenue as % of GDP may be quite stable, but I did not expect it's a fixed number. The 19.5% number is amazing to me.

read the full article here