the Laffer Curve works in the real world just as predicted by Laffer’s original axiom – and that the US is exactly in the wrong place on it.
Luskin wrote this yesterday at 8:05 AM. A few hours later, Mark Thoma noted:
The blue line is supposed to be the Laffer curve, but this is far from compelling. Since it looks like all that’s been done here is to draw a line through an outlier, Norway (an outlier that in other contexts we are told to ignore because it is an outlier, e.g. see below), and since this is clearly not the best fitting line to these data, here’s another possibility … I haven’t actually run the regression, but it looks clear to me that revenues rise with tax rates, and the fit also looks better than in the first graph. Toss out Norway, and the fit looks even better
Max Sawicky calls the WSJ graph the dumbest thing he has ever seen and adds:
For fun I did a regression line for similar data (same year, same countries). I threw out those annoying communist outliers at the top (Luxembourg and Norway) — countries with high tax rates and revenues. (By the way, when you include them without forcing a zero intercept, there is no significant relationship between the corporate tax rate (combined, central and sub-central govs) and corp rev/GDP. Very slight negative relationship. Throw out the two outliers and the same non-result (insignificant positive relationship).
That the Stupidest Man Alive fell for the dumbest thing Max has ever seen does not surprise Brad DeLong. Luskin says the Laffer curve works in “the real world”. Does he have any clue what the real world actually is?