The Rahn Curve (Armey Curve) and the Quantity/Quality of Government Spending

At the end of last month, I wrote about the growth-maximizing size of government, citing a study that estimated that the public sector in Sudan should not consume more than 11.17 percent of the nation’s economic output. I realize that very few people care about Sudanese fiscal policy, but the research gave me an opportunity […]

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The Rahn Curve, the Laffer Curve, and Walter Williams

What’s the relationship between the Rahn Curve and the Laffer Curve? For the uninitiated, the Rahn Curve is the common-sense notion that some government is helpful for prosperous markets but too much government is harmful to economic performance. Even libertarians, for instance, will acknowledge that spending on core “public goods” such as police protection and […]

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Linear Thinking and the Rahn Curve: Responding to a Critic

There’s an old saying that there’s no such thing as bad publicity. That may be true if you’re in Hollywood and visibility is a key to long-run earnings. But in the world of public policy, you don’t want to be a punching bag. And that describes my role in a book excerpt just published by […]

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Canada, the Rahn Curve, and the Size of Government

Last month, I shared a very interesting video from Canada’s Fraser Institute that explored the link between economic performance and the burden of government spending. There’s now an article in the American Enterprise Institute’s online magazine about this research. The first half of the article unveils the overall findings, explaining that there is a growth-maximizing […]

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We All Know Government Is too Big, but the Rahn Curve Provides the Evidence

Please share this video with everyone you know. It explains the “Rahn Curve,” which is a spending version of the Laffer Curve. Named after Cato Institute’s Richard Rahn, the Curve shows that modest amounts of government spending – for core “public goods” such as rule of law and protection of property rights – is associated […]

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Helping the Left and the Right Understand the Laffer Curve

As illustrated by this video tutorial, I’m a big advocate of the Laffer Curve. I very much want to help policy makers understand (especially at the Joint Committee on Taxation) that there’s not a linear relationship between tax rates and tax revenue. In other words, you don’t double tax revenue by doubling tax rates. Having […]

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The Laffer Curve and Limits to Class Warfare Tax Policy

I’m a big advocate of the Laffer Curve. Simply stated, it’s absurdly inaccurate to think that taxpayers and the economy are insensitive to changes in tax policy. Yet bureaucracies such as the Joint Committee on Taxation basically assume that the economy will be unaffected and that tax revenues will jump dramatically if tax rates are […]

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Question of the Week: What’s the Right Point on the Laffer Curve?

Back in 2010, I wrote a post entitled “What’s the Ideal Point on the Laffer Curve?” Except I didn’t answer my own question. I simply pointed out that revenue maximization was not the ideal outcome. I explained that policy makers instead should seek to maximize prosperity, and that this implied a much lower tax rate. […]

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The Laffer Curve Shows that Tax Increases Are a Very Bad Idea – even if They Generate More Tax Revenue

The Laffer Curve is a graphical representation of the relationship between tax rates, tax revenue, and taxable income. It is frequently cited by people who want to explain the common-sense notion that punitive tax rates may not generate much additional revenue if people respond in ways that result in less taxable income. Unfortunately, some people […]

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The Reagan Tax Cuts and Revenues from the Rich: A Lesson on the Laffer Curve for Barack Obama

One of my frustrating missions in life is to educate policy makers on the Laffer Curve. This means teaching folks on the left that tax policy affects incentives to earn and report taxable income. As such, I try to explain, this means it is wrong to assume a simplistic linear relationship between tax rates and […]

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Real World Evidence for the Laffer Curve from the Government of Washington, DC

President Obama is proposing a series of major tax increases. His budget envisions higher tax rates on personal income, increased double taxation of dividends and capital gains, and a big increase in the death tax. And his health care plan includes significant tax hikes, including perhaps the imposition of the Medicare payroll tax on capital […]

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Fiscal Policy, Double Taxation, and (Im)Morality

Since my specialty in economics is fiscal policy, I’m used to wonky (and perhaps boring) debates about topics such as marginal tax rates, Keynesianism, and the Armey-Rahn Curve. But there’s also a moral component to fiscal policy. Though immoral might be a better word. That’s because some of our friends on the left actually think […]

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Augmenting the Case for Spending Restraint

I explained last week that excessive government spending is responsible for about 97 percent of America’s fiscal deterioration in the 21st century. I followed that column with two post-election pieces that explained how huge tax increases will be inevitable if there is no effort to deal with the spending problem. Simply stated, lawmakers need to […]

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Assessing the Growth-Maximizing Size of Government

Most people have heard of the Laffer Curve, which shows that there is a non-linear relationship between tax rates and tax revenues (for instance, doubling tax rates won’t produce a doubling of tax revenue because people and businesses will have less incentive to earn and report income). There’s something similar on the spending side of […]

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The Optimum Level of Government Spending

Echoing remarks earlier this month to a group in Nigeria, I spoke today about fiscal economics to the 2022 Africa Liberty Camp in Entebbe, Uganda. During the Q&A session, I was asked to specify the ideal amount of government spending. I addressed that issue in an April interview while visiting Spain. You’ll notice that I […]

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Deconstructing Biden’s Corporate Tax Cartel, Part I

When governments have to compete with each other, we get lower tax rates. That’s good for taxpayers and good for growth. But politicians hate limits on their taxing power, which is why Biden has proposed a global tax cartel. Here are some of my remarks made yesterday on this topic. If you don’t have time […]

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Fiscal Fantasyland

There are plenty of people on the left who write serious and substantive articles about fiscal policy. For instance, I strongly disagree with many of the policy prescriptions from the IMF and the OECD, but those international bureaucracies are reasonably rigorous with data. Heck, they even use real data when they’re being dishonest. Some people, […]

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Here’s How Guilt-Ridden Rich People Can Pay More Tax without Hurting the Rest of Us

I want more people to become rich. That’s why I support free markets. But a few already-rich people say such silly things that I wonder whether a big bank account somehow can lead to a loss of common sense. For background information on this issue, there’s a Politico article on some of the recent statements […]

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Class-Warfare Taxation, Government Spending, and Economic Growth

Arthur Okun was a well-known left-of-center economist last century. He taught at Yale, was Chairman of the Council of Economic Advisors for President Lyndon Johnson, and also did a stint at Brookings. In today’s column, I’m not going to blame him for any of LBJ’s mistakes (being a big spender, creating Medicare and Medicaid). Instead, […]

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A Lesson from China about Growth and Shared Prosperity

I’ve just finished up a week of teaching at Northeastern University in Shenyang, China. I mostly taught public finance and explained issues such as marginal tax rates, double taxation, the Rahn Curve, the Laffer Curve, and the fiscal implications of demographic change. I also gave a lecture on comparative economics and looked at nations that […]

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Incomes, Fairness, Mobility, and Equality

I wish my leftist friends understood the Laffer Curve. I also wish they understood the downsides of artificially low interest rates. And the Rahn Curve. And comparative advantage. But perhaps more than anything else, I wish they understood that poor people aren’t poor simply because rich people are rich. John Stossel has a new video […]

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What’s Required to Finance Roads, Schools, and Healthcare?

When I argue with my statist friends about the proper size and scope of government, they accuse me of not wanting public services. My typical response is to explain that I am a strong supporter of markets as the method to get high-quality roads, schools, and healthcare. But I’m wondering whether this answer pays too […]

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Trump’s Spending Splurge Is a Long-Run Recipe for Higher Taxes and Less Prosperity

I sometimes sardonically comment about Democratic politicians playing Santa Claus, but Republicans can play that game as well. Trump and his allies in Congress recently agreed on a big-spending budget deal that lavishes more money on both the Pentagon and domestic programs, and that was only a few weeks after agreeing on a tax reform […]

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Australia, Donald Trump, and Limited Government

I gave a couple of speeches about fiscal policy in Australia late last week. During the Q&A sessions (as so often happens when I speak overseas), the audiences mostly asked questions about Donald Trump. I generally give a three-part response. I tell them I was surprised by the election results. I tell them Trump is […]

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Liberland and the Libertarian Vision of a Minimal State

It’s not that much fun to be a libertarian, at least if you work in public policy. You spend your days hoping that “Public Choice” can be overcome, which means you’re laboring to fulfill Sisyphean tasks. Trying to convince politicians and bureaucrats to voluntary give up power and control over the economy. Good luck with […]

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Defending the World Bank

To be blunt, I don’t think the World Bank should exist. We don’t need an international bureaucracy to promote economic development in poor nations. Particularly since the policies that we know will work – free markets and small government – oftentimes are hindered by intervention from multilateral institutions such as the World Bank. For example, […]

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OECD Economic Research Finds that Government Spending Harms Growth

At the risk of understatement, I’m not a fan of the Organization for Economic Cooperation and Development. Perhaps reflecting the mindset of the European governments that dominate its membership, the Paris-based international bureaucracy has morphed into a cheerleader for statist policies. All of which was just fine from the perspective of the Obama Administration, which […]

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More Research and Evidence on the Need to Restrain Government Spending

Now that Donald Trump has been elected, one of my main goals will be to convince him and his team that it would be wrong to leave government spending on autopilot (and it would be even worse to spend more money and increase the burden of government!). Since Trump semi-endorsed the Penny Plan, I don’t […]

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More Research Showing the Negative Impact of Large Public Sectors

Since I’ve referred to the International Monetary Fund as both “the Dumpster Fire of the Global Economy” and “the Dr. Kevorkian of Global Economic Policy,” readers can safely conclude that I’m not a fan of the international bureaucracy. My main gripe is that senior bureaucrats routinely make the mistake of bailing out profligate governments (often […]

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When Picking the Correct Size of Government, the Choice Isn’t Anarchy or Greece

Back in 2011, I shared a video that mocked libertarians by claiming that Somalia was their ideal no-government paradise. I pointed out, of course, that the argument was silly. Sort of like claiming that North Korea is the left’s version of policy paradise. But the video was very clever, and I’m more than willing to […]

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