In the private sector, no business owner would be dumb enough to assume that higher prices automatically translate into proportionately higher revenues. If McDonald’s boosted hamburger prices by 30 percent, for instance, the experts at the company would fully expect that sales would decline. Depending on the magnitude of the drop, total revenue might still climb, but by far less than 30 percent. And it’s quite possible that the company would lose revenue. In the public sector, however, there is very little understanding of how the real world works. Here’s a Reuters story I saw on Tim Worstall’s blog, which reveals that Bulgaria and Romania both are losing revenue after increasing tobacco taxes.
Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead. Criminal gangs and impoverished Roma communities near borders with countries where prices are lower — Serbia, Macedonia, Moldova and Ukraine — have taken to smuggling which has wiped out gains from higher excise duties. Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third. …Overall losses from smuggling will probably outweigh tax gains as Bulgaria struggle to fight the growing black market, which has risen to over 30 percent of all cigarette sales and could cost 500 million levs in lost revenues this year, said Bezlov at the Center for the Study of Democracy. While the government expected higher income from taxes in 2010 it has already revised that to the same level as last year. “However, this (too) looks unlikely at present,” Bezlov added. Romania, desperately trying to keep a 20 billion-euro International Monetary Fund-led bailout deal on track, has a similar problem after nearly doubling cigarette prices in 2009 then hiking value added tax. Romania’s top three cigarette makers — units of British American Tobacco, Japan Tobacco International and Philip Morris — contributed roughly 2 billion euros to the budget in taxes in 2009, or just under 2 percent of GDP. They estimate about a third of cigarettes in Romania are smuggled and say this could cost the state over 1 billion euros.
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] This is a slight over-simplification, but it does capture the basics of conventional revenue estimating. And it also shows why “static scoring” is deeply flawed. In the real world, people respond to incentives. When tax rates rise and fall, people change their behavior. […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, […]
[…] then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and in Washington, DC, and Michigan. Even the Government Accountability Office has found big […]
[…] written about massive Laffer Curve effects from excessive tobacco taxation in Michigan, Ireland, Bulgaria, and Quebec, and […]
[…] written about massive Laffer Curve effects from excessive tobacco taxation in Michigan, Ireland, Bulgaria, and Quebec, and […]
[…] shop owners, Facebook millionaires, Norwegian butter buyers, New York taxpayers, Bulgarian smokers, foreign cab drivers, New Jersey residents, Australian film stars, and everyone else who does […]
[…] others that are willing to go underground and provide cigarettes in the black market. We saw this in Bulgaria and Romania. We saw in in Quebec and Michigan. And we saw it in Ireland and Washington, DC. As I explained a […]
[…] with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, Washington, DC, and New […]
[…] with cigarettes, for instance, and we examples of excessive taxation causing less revenue from Bulgaria, Romania, and Ireland. And we’ve even seen this Laffer Curve effect in Washington, […]
[…] and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and […]
[…] though, is to ask folks to pretend that they’re running a restaurant and to think about what might happen to their sales if they double the price of hamburgers. Would it make sense to assume that they would get twice as much […]
[…] though, is to ask folks to pretend that they’re running a restaurant and to think about what might happen to their sales if they double the price of hamburgers. Would it make sense to assume that they would get twice as much […]
[…] and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and […]
[…] and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and in Washington, DC, and Michigan. Even the Government Accountability Office has found big […]
[…] ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, Washington, DC, and New […]
[…] ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, Washington, DC, and New […]
[…] and then they are surprised when projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and […]
[…] then they are surprised when projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and […]
[…] they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] This is a slight over-simplification, but it does capture the basics of conventional revenue estimating. And it also shows why “static scoring” is deeply flawed. In the real world, people respond to incentives. When tax rates rise and fall, people change their behavior. […]
[…] This is a slight over-simplification, but it does capture the basics of conventional revenue estimating. And it also shows why “static scoring” is deeply flawed. In the real world, people respond to incentives. When tax rates rise and fall, people change their behavior. […]
[…] This is a slight over-simplification, but it does capture the basics of conventional revenue estimating. And it also shows why “static scoring” is deeply flawed. In the real world, people respond to incentives. When tax rates rise and fall, people change their behavior. […]
[…] I write about the Laffer Curve so often that I’m surprised people don’t run away screaming. But I’ll continue to be a pest because I want people to understand that you can’t just look at changes in tax rates when predicting changes in tax revenue. You also have to consider changes in taxable income. […]
[…] I write about the Laffer Curve so often that I’m surprised people don’t run away screaming. But I’ll continue to be a pest because I want people to understand that you can’t just look at changes in tax rates when predicting changes in tax revenue. You also have to consider changes in taxable income. […]
[…] I write about the Laffer Curve so often that I’m surprised people don’t run away screaming. But I’ll continue to be a pest because I want people to understand that you can’t just look at changes in tax rates when predicting changes in tax revenue. You also have to consider changes in taxable income. […]
[…] Laffer Curve is one of my favorite issues (see here, here, here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to […]
[…] Laffer Curve is one of my favorite issues (see here, here, here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to […]
[…] Laffer Curve is one of my favorite issues (see here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to convince […]
[…] Laffer Curve is one of my favorite issues (see here, here, here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to […]
[…] Laffer Curve is one of my favorite issues (see here, here, here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to […]
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[…] view taxpayers as serfs who are supposed to blindly produce more income for the ruling class to expropriate and redistribute. While I’m obviously not a big fan of British fiscal policy, America is worse in one important […]
[…] view taxpayers as serfs who are supposed to blindly produce more income for the ruling class to expropriate and redistribute. While I’m obviously not a big fan of British fiscal policy, America is worse in one […]
[…] as tax rates approach 100 percent. This creates a huge bias against good tax policy, yet JCT is impervious to evidence that its approach is wildly flawed. And don’t forget that CBO and JCT both bear responsibility […]