178-531: In economics , the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue . The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and 100%, meaning that there is a tax rate between 0% and 100% that maximizes government tax revenue. The shape of the curve is a function of taxable income elasticity —i.e., taxable income changes in response to changes in
356-587: A chargé d'affaires in Paris, writing "despatches to the British Secretary of State ". He wrote of his Paris life, "I really wish often for the plain roughness of The Poker Club of Edinburgh... to correct and qualify so much lusciousness." Upon returning to Britain in 1766, Hume wrote a letter to Lord Hertford after being asked to by George Colebrooke ; the letter informed Lord Hertford that he had an opportunity to invest in one of Colebrooke's slave plantations in
534-452: A multivalued function of tax rate; for instance, an increase in tax rate to a certain percentage may not result in the same revenue as a decrease in tax rate to the same percentage (a kind of hysteresis ). Furthermore, the Laffer curve does not take explicitly into account the nature of the tax avoidance taking place. It is possible that if all producers are endowed with two survival factors in
712-468: A normative conclusion of what ought to be done. Hume denied that humans have an actual conception of the self, positing that we experience only a bundle of sensations , and that the self is nothing more than this bundle of perceptions connected by an association of ideas. Hume's compatibilist theory of free will takes causal determinism as fully compatible with human freedom. His philosophy of religion , including his rejection of miracles, and of
890-504: A "simple Roman tomb", requesting in his will that it be inscribed only with his name and the year of his birth and death, "leaving it to Posterity to add the Rest". David Hume died at the southwest corner of St. Andrew's Square in Edinburgh's New Town , at what is now 21 Saint David Street. A popular story, consistent with some historical evidence and with the help of coincidence, suggests that
1068-483: A Laffer curve. According to the model, the shape and position of the Laffer curve depend upon the strength of supply side effects, the progressivity of the tax system and the size of the unobserved economy. Economist Paul Pecorino presented a model in 1995 that predicted the peak of the Laffer curve occurred at tax rates around 65%. A draft paper by Y. Hsing looking at the United States economy between 1959 and 1991 placed
1246-513: A coldness—which he attributed to a "Laziness of Temper"—that lasted about nine months. Scurvy spots later broke out on his fingers, persuading Hume's physician to diagnose him with the "Disease of the Learned". Hume wrote that he "went under a Course of Bitters and Anti-Hysteric Pills", taken along with a pint of claret every day. He also decided to have a more active life to better continue his learning. His health improved somewhat, but in 1731, he
1424-702: A definition of economics as a study of human behaviour, subject to and constrained by scarcity, which forces people to choose, allocate scarce resources to competing ends, and economise (seeking the greatest welfare while avoiding the wasting of scarce resources). According to Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses". Robbins' definition eventually became widely accepted by mainstream economists, and found its way into current textbooks. Although far from unanimous, most mainstream economists would accept some version of Robbins' definition, even though many have raised serious objections to
1602-451: A distinct field. The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low " effective demand " and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis. During
1780-417: A hot pan's handle is more forceful than simply thinking about touching a hot pan. According to Hume, impressions are meant to be the original form of all our ideas. From this, Don Garrett (2002) has coined the term copy principle, referring to Hume's doctrine that all ideas are ultimately copied from some original impression, whether it be a passion or sensation, from which they derive. After establishing
1958-420: A lower relative cost of production, rather relying only on its own production. It has been termed a "fundamental analytical explanation" for gains from trade . Coming at the end of the classical tradition, John Stuart Mill (1848) parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between
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#17328551341192136-415: A mid-range of around 70%. The shape of the Laffer curve may also differ between different global economies. The Laffer curve was popularized in the United States with policymakers following an afternoon meeting with Ford Administration officials Dick Cheney and Donald Rumsfeld in 1974, in which Arthur Laffer reportedly sketched the curve on a napkin to illustrate his argument. The term "Laffer curve"
2314-414: A moment ... but the sheer agreeableness of animal faith will protect us from excessive caution and sterile suspension of belief. Others, such as Charles Sanders Peirce , have demurred from Hume's solution, while some, such as Kant and Karl Popper , have thought that Hume's analysis has "posed a most fundamental challenge to all human knowledge claims". The notion of causation is closely linked to
2492-449: A more comprehensive theory of costs on the supply side. In the 20th century, neoclassical theorists departed from an earlier idea that suggested measuring total utility for a society, opting instead for ordinal utility , which posits behaviour-based relations across individuals. In microeconomics , neoclassical economics represents incentives and costs as playing a pervasive role in shaping decision making . An immediate example of this
2670-460: A more important role in mainstream economic theory. Also, heterogeneity among the economic agents, e.g. differences in income, plays an increasing role in recent economic research. Other schools or trends of thought referring to a particular style of economics practised at and disseminated from well-defined groups of academicians that have become known worldwide, include the Freiburg School ,
2848-562: A naturalistic science of man that examined the psychological basis of human nature. Hume followed John Locke in rejecting the existence of innate ideas , concluding that all human knowledge derives solely from experience. This places him with Francis Bacon , Thomas Hobbes , John Locke, and George Berkeley as an empiricist. Hume argued that inductive reasoning and belief in causality cannot be justified rationally; instead, they result from custom and mental habit. We never actually perceive that one event causes another but only experience
3026-749: A paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates." This paper considered the impact of a stylized reduction of 10% in the then existing marginal rate of federal income tax in the US (for example, if those facing a 25% marginal federal income tax rate had it lowered to 22.5%). Unlike earlier research, the CBO paper estimates the budgetary impact of possible macroeconomic effects of tax policies, that is, it attempts to account for how reductions in individual income tax rates might affect
3204-606: A person experiences a variety of taste-sensations, tactile-sensations, and smell-sensations when biting into an apple, with the overall sensation—again, a complex impression. Thinking about an apple allows a person to form complex ideas, which are made of similar parts as the complex impressions they were developed from, but which are also less forceful. Hume believes that complex perceptions can be broken down into smaller and smaller parts until perceptions are reached that have no parts of their own, and these perceptions are thus referred to as simple. Regardless of how boundless it may seem;
3382-422: A person's imagination is confined to the mind's ability to recombine the information it has already acquired from the body's sensory experience (the ideas that have been derived from impressions). In addition, "as our imagination takes our most basic ideas and leads us to form new ones, it is directed by three principles of association, namely, resemblance, contiguity, and cause and effect": Hume elaborates more on
3560-697: A personal level, the Marquess found Hume's dietary tendencies to be bizarre. Hume then started his great historical work, The History of England , which took fifteen years and ran to over a million words. During this time, he was also involved with the Canongate Theatre through his friend John Home , a preacher. In this context, he associated with Lord Monboddo and other thinkers of the Scottish Enlightenment in Edinburgh. From 1746, Hume served for three years as secretary to General James St Clair , who
3738-586: A proportion of the value their work had created. Marxian economics was further developed by Karl Kautsky (1854–1938)'s The Economic Doctrines of Karl Marx and The Class Struggle (Erfurt Program) , Rudolf Hilferding 's (1877–1941) Finance Capital , Vladimir Lenin (1870–1924)'s The Development of Capitalism in Russia and Imperialism, the Highest Stage of Capitalism , and Rosa Luxemburg (1871–1919)'s The Accumulation of Capital . At its inception as
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#17328551341193916-409: A rapidly growing population against a limited amount of land meant diminishing returns to labour. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level. Economist Julian Simon has criticised Malthus's conclusions. While Adam Smith emphasised production and income, David Ricardo (1817) focused on
4094-561: A scholar of 18th-century literature, judged it a "remarkable autobiography, even though it may lack the usual attractions of that genre. Anyone hankering for startling revelations or amusing anecdotes had better look elsewhere." Despite condemning vanity as a dangerous passion, in his autobiography Hume confesses his belief that the "love of literary fame" had served as his "ruling passion" in life, and claims that this desire "never soured my temper, notwithstanding my frequent disappointments". One such disappointment Hume discusses in this account
4272-469: A set of stable preferences, a definite overall guiding objective, and the capability of making a choice. There exists an economic problem, subject to study by economic science, when a decision (choice) is made by one or more players to attain the best possible outcome. Keynesian economics derives from John Maynard Keynes , in particular his book The General Theory of Employment, Interest and Money (1936), which ushered in contemporary macroeconomics as
4450-717: A similar policy idea in 1924. Laffer's name began to be associated with the idea after an article was published in National Affairs in 1978 that linked him to the idea. In the National Affairs article, Jude Wanniski recalled a 1974 dinner meeting at the Two Continents Restaurant in the Washington Hotel with Arthur Laffer , Wanniski, Dick Cheney , Donald Rumsfeld , and his deputy press secretary Grace-Marie Arnett. In this meeting, Laffer, arguing against President Gerald Ford 's tax increase, reportedly sketched
4628-409: A single tax on income of land owners. In reaction against copious mercantilist trade regulations, the physiocrats advocated a policy of laissez-faire , which called for minimal government intervention in the economy. Adam Smith (1723–1790) was an early economic theorist. Smith was harshly critical of the mercantilists but described the physiocratic system "with all its imperfections" as "perhaps
4806-452: A social science, economics was defined and discussed at length as the study of production, distribution, and consumption of wealth by Jean-Baptiste Say in his Treatise on Political Economy or, The Production, Distribution, and Consumption of Wealth (1803). These three items were considered only in relation to the increase or diminution of wealth, and not in reference to their processes of execution. Say's definition has survived in part up to
4984-435: A sought after end). Some subsequent comments criticised the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, however, such comments abated as the economic theory of maximizing behaviour and rational-choice modelling expanded the domain of the subject to areas previously treated in other fields. There are other criticisms as well, such as in scarcity not accounting for
5162-442: A synthesis emerged by the 2000s, often given the name the new neoclassical synthesis . It integrated the rational expectations and optimizing framework of the new classical theory with a new Keynesian role for nominal rigidities and other market imperfections like imperfect information in goods, labour and credit markets. The monetarist importance of monetary policy in stabilizing the economy and in particular controlling inflation
5340-495: A tax that discriminates on the ability to pay. However, if avoidance abilities and productive abilities are unrelated, then this result disappears. Generally, among other criticisms, the Laffer curve has been scrutinised as intangible and inapplicable in the real world, i. e. in a real national economy. On the contrary, diligent application of the Laffer curve in the past has actually led to controversial outcomes. Since its proposal, there have been several real-life trials of modelling
5518-422: A variety of speculations. One prominent interpretation among contemporary Humean scholarship is that this new "scene of thought" was Hume's realisation that Francis Hutcheson 's theory of moral sense could be applied to the understanding of morality as well. From this inspiration, Hume set out to spend a minimum of 10 years reading and writing. He soon came to the verge of a mental breakdown, first starting with
Laffer curve - Misplaced Pages Continue
5696-459: A very usual indiscretion, in going to the press too early." Hume also provides an unambiguous self-assessment of the relative value of his works: that "my Enquiry concerning the Principles of Morals; which, in my own opinion (who ought not to judge on that subject) is of all my writings, historical, philosophical, or literary, incomparably the best." He also wrote of his social relations: "My company
5874-422: A zero capital gains rate. The increased aggregate supply would result in increased aggregate demand, hence the term "supply-side economics". Laffer assumes that the government's revenue is a continuous function of the tax rate. However, in some theoretical models, the Laffer curve can be discontinuous, leading to an inability to devise a revenue-maximizing tax rate solution. Additionally, the Laffer curve depends on
6052-421: Is a term for the "way (nomos) to run a household (oikos)", or in other words the know-how of an οἰκονομικός ( oikonomikos ), or "household or homestead manager". Derived terms such as "economy" can therefore often mean "frugal" or "thrifty". By extension then, "political economy" was the way to manage a polis or state. There are a variety of modern definitions of economics ; some reflect evolving views of
6230-438: Is also applied to such diverse subjects as crime , education , the family , feminism , law , philosophy , politics , religion , social institutions , war , science , and the environment . The earlier term for the discipline was "political economy", but since the late 19th century, it has commonly been called "economics". The term is ultimately derived from Ancient Greek οἰκονομία ( oikonomia ) which
6408-452: Is an enormous error ... to believe that an impost always yields more revenue as it becomes heavier". He gave the example of a toll on late-night entry to a town which would be less remunerative if set unreasonably high. David Hume expressed similar arguments in his essay Of Taxes in 1756, as did fellow Scottish economist Adam Smith twenty years later. At the time of the Irish famine of
6586-409: Is enacted which abruptly changes tax revenue expectations. Laffer explains the model in terms of two interacting effects of taxation: an " arithmetic effect" and an "economic effect". The "arithmetic effect" assumes that tax revenue raised is the tax rate multiplied by the revenue available for taxation (or tax base). Thus revenue R is equal to t × B where t is the tax rate and B
6764-439: Is equal to the sum of elasticity of the tax base plus one all multiplied by the tax base. Thus as elasticity surpasses one absolute value, revenues begin to fall. The problem is similar to that of the monopolist who must never increase prices beyond the point at which the elasticity of demand exceeds one in absolute value. Wanniski noted that all economic activity would be unlikely to cease at 100% taxation, but it would switch from
6942-400: Is generally accepted, the precise nature of this interaction is debated. In practice, the shape of a hypothetical Laffer curve for a given economy can only be estimated. The relationship between tax rate and tax revenue is likely to vary from one economy to another and depends on the elasticity of supply for labor, as well as various other factors. Even in the same economy, the characteristics of
7120-516: Is in the initial literary reception of the Treatise , which he claims to have overcome by means of the success of the Essays : "the work was favourably received, and soon made me entirely forget my former disappointment". Hume, in his own retrospective judgment, argues that his philosophical debut's apparent failure "had proceeded more from the manner than the matter". He thus suggests that "I had been guilty of
7298-420: Is likely to become lower. Laffer presented the curve as a pedagogical device to show that in some circumstances, a reduction in tax rates will actually increase government revenue and not need to be offset by decreased government spending or increased borrowing. For a reduction in tax rates to increase revenue, the current tax rate would need to be higher than the revenue maximizing rate. In 2007, Laffer said that
Laffer curve - Misplaced Pages Continue
7476-472: Is maximized by lowering the barriers to producing goods and services (the "Supply Side" of the economy). By lowering such barriers, consumers are thought to benefit from a greater supply of goods and services at lower prices. Typical supply-side policy would advocate generally lower income tax and capital gains tax rates (to increase the supply of labor and capital), smaller government and a lower regulatory burden on enterprises (to lower costs). Although tax policy
7654-597: Is nothing", he pushed for the reduction of the top income tax bracket from 73% to an eventual 24% (as well as tax breaks for lower brackets). Mellon was one of the wealthiest people in the United States, the third-highest income-tax payer in the mid-1920s, behind John D. Rockefeller and Henry Ford . While he served as Secretary of the U.S. Treasury Department his wealth peaked at around US$ 300–400 million. Personal income tax receipts rose from US$ 719 million in 1921 to over US$ 1 billion in 1929, an average increase of 4.2% per year over an 8-year period, which supporters attribute to
7832-459: Is often mentioned in relation to supply-side economics, supply-side economists are concerned with all impediments to the supply of goods and services and not just taxation. In their economics textbook Principles of Economics (7th edition), economists Karl E. Case of Wellesley College and Ray Fair of Yale University state "The Laffer curve shows the relationship between tax rates and tax revenues. Supply-side economists use it to argue that it
8010-402: Is our knowledge, and not our ability to conceive, that is restricted to what can be experienced. Hume thought that we can form beliefs about that which extends beyond any possible experience, through the operation of faculties such as custom and the imagination, but he was sceptical about claims to knowledge on this basis. A central doctrine of Hume's philosophy, stated in the very first lines of
8188-526: Is possible to generate higher revenues by cutting tax rates, but evidence does not appear to support this." The Laffer curve and supply-side economics inspired Reaganomics and the Kemp-Roth Tax Cut of 1981. Supply-side advocates of tax cuts claimed that lower tax rates would generate more tax revenue because the United States government 's marginal income tax rates prior to the legislation were on
8366-413: Is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it
8544-451: Is something in the cause that necessarily produces its effect is because our past experiences have habituated us to think in this way. Continuing this idea, Hume argues that "only in the pure realm of ideas, logic, and mathematics, not contingent on the direct sense awareness of reality, [can] causation safely…be applied—all other sciences are reduced to probability". He uses this scepticism to reject metaphysics and many theological views on
8722-552: Is that increasing tax rates beyond a certain point is counter-productive for raising further tax revenue. Particularly in the United States, conservatives have used the Laffer curve to argue that lower taxes may increase tax revenue. However, the hypothetical maximum revenue point of the Laffer curve for any given market cannot be observed directly and can only be estimated—such estimates are often controversial. According to The New Palgrave Dictionary of Economics , estimates of revenue-maximizing income tax rates have varied widely, with
8900-598: Is the consumer theory of individual demand, which isolates how prices (as costs) and income affect quantity demanded. In macroeconomics it is reflected in an early and lasting neoclassical synthesis with Keynesian macroeconomics. Neoclassical economics is occasionally referred as orthodox economics whether by its critics or sympathisers. Modern mainstream economics builds on neoclassical economics but with many refinements that either supplement or generalise earlier analysis, such as econometrics , game theory , analysis of market failure and imperfect competition , and
9078-425: Is the taxable base ( R = t × B ). At a 0% tax rate, the model states that no tax revenue is raised. The "economic effect" assumes that the tax rate will affect the tax base itself. At the extreme of a 100% tax rate, the government collects zero revenue because taxpayers change their behavior in response to the tax rate: either they lose their incentive to work, or they find a way to avoid paying taxes. Thus,
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#17328551341199256-438: Is to argue that, rather than reason, natural instinct explains the human practice of making inductive inferences. He asserts that "Nature, by an absolute and uncontroulable [ sic ] necessity has determin'd us to judge as well as to breathe and feel." In 1985, and in agreement with Hume, John D. Kenyon writes: Reason might manage to raise a doubt about the truth of a conclusion of natural inductive inference just for
9434-495: The Treatise of Human Nature , is that the mind consists of perceptions, or the mental objects which are present to it, and which divide into two categories: "All the perceptions of the human mind resolve themselves into two distinct kinds, which I shall call impressions and ideas ." Hume believed that it would "not be very necessary to employ many words in explaining this distinction", which commentators have generally taken to mean
9612-450: The Kansas experiment . Laffer was paid $ 75,000 to advise in the creation of Brownback's tax cut plan, and gave Brownback his full endorsement, stating that what Brownback was doing was "truly revolutionary." The state, which had previously had a budget surplus, experienced a budget deficit of about $ 200 million in 2012. Drastic cuts to state funding for education and infrastructure followed before
9790-632: The Philosophical Essays , which were decidedly anti-religious. This represented a turning point in his career and the various opportunities made available to him. Even Adam Smith , his personal friend who had vacated the Glasgow philosophy chair, was against his appointment out of concern that public opinion would be against it. In 1761, all his works were banned on the Index Librorum Prohibitorum . Hume returned to Edinburgh in 1751. In
9968-511: The Reagan administration actively used the Laffer curve "to lower taxes on the affluent". Some critics point out that tax revenues almost always rise every year, and during Reagan's two terms increases in tax revenue were more shallow than increases during presidencies where top marginal tax rates were higher. Critics also point out that since the Reagan tax cuts, income has not significantly increased for
10146-702: The School of Lausanne , the Stockholm school and the Chicago school of economics . During the 1970s and 1980s mainstream economics was sometimes separated into the Saltwater approach of those universities along the Eastern and Western coasts of the US, and the Freshwater, or Chicago school approach. Within macroeconomics there is, in general order of their historical appearance in
10324-534: The Treatise to be Hume's most important work and one of the most important books in Western philosophy, critics in Great Britain at the time described it as "abstract and unintelligible". As Hume had spent most of his savings during those four years, he resolved "to make a very rigid frugality supply [his] deficiency of fortune, to maintain unimpaired [his] independency, and to regard every object as contemptible except
10502-478: The Treatise . Though he was only 23 years old when starting this work, it is now regarded as one of the most important in the history of Western philosophy . Hume worked for four years on his first major work, A Treatise of Human Nature , subtitled "Being an Attempt to Introduce the Experimental Method of Reasoning into Moral Subjects", completing it in 1738 at age 28. Although many scholars today consider
10680-490: The University of Edinburgh at an unusually early age—either 12 or possibly as young as 10—at a time when 14 was the typical age. Initially, Hume considered a career in law , because of his family. However, in his words, he came to have: ...an insurmountable aversion to everything but the pursuits of Philosophy and general Learning; and while [my family] fanceyed I was poring over Voet and Vinnius , Cicero and Virgil were
10858-557: The West Indies , though Hertford ultimately decided not to do so. In June of that year, Hume facilitated the purchase of a slave plantation in Martinique on behalf of his friend, the wine merchant John Stewart, by writing to the colony's governor Victor-Thérèse Charpentier . According to Felix Waldmann, a former Hume Fellow at the University of Edinburgh, Hume's "puckish scepticism about
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#173285513411911036-401: The argument from design for God's existence, were especially controversial for their time. Hume left a legacy that affected utilitarianism , logical positivism , the philosophy of science , early analytic philosophy , cognitive science , theology , and many other fields and thinkers. Immanuel Kant credited Hume as the inspiration that had awakened him from his "dogmatic slumbers." Hume
11214-433: The macroeconomics of high unemployment. Gary Becker , a contributor to the expansion of economics into new areas, described the approach he favoured as "combin[ing the] assumptions of maximizing behaviour, stable preferences , and market equilibrium , used relentlessly and unflinchingly." One commentary characterises the remark as making economics an approach rather than a subject matter but with great specificity as to
11392-467: The neoclassical model of economic growth for analysing long-run variables affecting national income . Neoclassical economics studies the behaviour of individuals , households , and organisations (called economic actors, players, or agents), when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to obtain these ends,
11570-556: The optimal tax rate, which economists use to describe tax rates in a tax system that raises a given amount of revenue with the fewest distortions to the economy. In 2017, Jacob Lundberg of the Uppsala University estimated Laffer curves for 27 OECD countries, with top income-tax rates maximising tax revenue ranging from 60 to 61% (Austria, Luxembourg, Netherlands, Poland, Sweden) to 74–76% (Germany, Switzerland, UK, US). Most countries appear to have set their highest tax rates below
11748-476: The right-hand side of the curve. This assertion was derided by George H. W. Bush as "voodoo economics" while running against Reagan for the Presidential nomination in 1980. During the Reagan presidency, the top marginal rate of tax in the United States fell from 70% to 28%. David Stockman , Ronald Reagan's budget director during his first administration and one of the early proponents of supply-side economics,
11926-415: The societal to the microeconomic level: Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. Lionel Robbins (1932) developed implications of what has been termed "[p]erhaps the most commonly accepted current definition of
12104-455: The " constant conjunction " of events. This problem of induction means that to draw any causal inferences from past experience, it is necessary to presuppose that the future will resemble the past; this metaphysical presupposition cannot itself be grounded in prior experience. An opponent of philosophical rationalists , Hume held that passions rather than reason govern human behaviour, famously proclaiming that " Reason is, and ought only to be
12282-400: The "choice process and the type of social interaction that [such] analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which
12460-434: The "economic effect" of a 100% tax rate is to decrease the tax base to zero. If this is the case, then somewhere between 0% and 100% lies a tax rate that will maximize revenue. Graphical representations of the curve sometimes appear to put the rate at around 50%, if the tax base reacts to the tax rate linearly, but the revenue-maximizing rate could theoretically be any percentage greater than 0% and less than 100%. Similarly,
12638-464: The 1750s, it was necessary for his friends to avert a trial against him on the charge of heresy , specifically in an ecclesiastical court. However, he "would not have come and could not be forced to attend if he said he was not a member of the Established Church". Hume failed to gain the chair of philosophy at the University of Glasgow due to his religious views. By this time, he had published
12816-585: The 1920s tax cuts, and the changes in US capital gains tax structure in 1997. Some have also cited Hauser's Law , which postulates that US federal revenues, as a percentage of GDP, have remained stable at approximately 19.5% over the period 1950 to 2007 despite changes in marginal tax rates over the same period. Others however, have called Hauser's Law "misleading" and contend that tax changes have had large effects on tax revenues. More recently, based on Laffer curve arguments, Kansas Governor Sam Brownback greatly reduced state tax rates in 2012 in what has been called
12994-486: The 1970s and 1980s, when several major central banks followed a monetarist-inspired policy, but was later abandoned because the results were unsatisfactory. A more fundamental challenge to the prevailing Keynesian paradigm came in the 1970s from new classical economists like Robert Lucas , Thomas Sargent and Edward Prescott . They introduced the notion of rational expectations in economics, which had profound implications for many economic discussions, among which were
13172-605: The Authors which I was secretly devouring. He had little respect for the professors of his time, telling a friend in 1735 that "there is nothing to be learnt from a Professor, which is not to be met with in Books". He did not graduate. At around age 18, Hume made a philosophical discovery that opened up to him "a new Scene of Thought", inspiring him "to throw up every other Pleasure or Business to apply entirely to it". As he did not recount what this scene exactly was, commentators have offered
13350-632: The Chair of Pneumatics and Moral Philosophy at the University of Edinburgh. However, the position was given to William Cleghorn after Edinburgh ministers petitioned the town council not to appoint Hume because he was seen as an atheist. In 1745, during the Jacobite risings , Hume tutored the Marquess of Annandale , an engagement that ended in disarray after about a year. The Marquess could not follow with Hume's lectures, his father saw little need for philosophy, and on
13528-442: The Laffer curve and its consequent application, which have resulted in the finding that tax rates, which are actually utilised by the governing body, are to the left of the Laffer curve turning point, which would maximise tax revenue. More significantly, the result of several experiments, which tried to adjust the tax rate to the one proposed by the Laffer curve model, resulted in a significant decrease in national tax revenue - lowering
13706-614: The US and most European economies were on the left of the Laffer curve (in other words, that raising taxes would raise further revenue). A 2005 study concluded that with the exception of Sweden, no major OECD country could increase revenue by reducing the marginal tax rate. The New Palgrave Dictionary of Economics reports that a comparison of academic studies yields a range of revenue maximizing rates that centers around 70%. The Laffer curve has also been extended to taxation of goods and services. In their 2018 Econometrica paper, Miravete, Seim, and Thurk, show that in non-competitive markets,
13884-461: The United States income tax rate was on the "backwards-sloping" side of the curve and yet they still advocated lowering taxes to encourage investment of personal savings. Supply-side economics indicates that the simple descriptions of the Laffer curve are usually intended for pedagogical purposes only and do not represent the complex economic responses to tax policy which may be observed from such viewpoints as provided by supply-side economics. Although
14062-407: The analysis of wealth: how wealth is created (production), distributed, and consumed; and how wealth can grow. But he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it (as a sought after end ), generates both cost and benefits; and, resources (human life and other costs) are used to attain the goal. If
14240-479: The area of inquiry or object of inquiry rather than the methodology. In the biology department, it is not said that all biology should be studied with DNA analysis. People study living organisms in many different ways, so some people will perform DNA analysis, others might analyse anatomy, and still others might build game theoretic models of animal behaviour. But they are all called biology because they all study living organisms. According to Ha Joon Chang, this view that
14418-444: The assumption that tax revenue is used to provide a public good that is separable in utility and separate from labor supply, which may not be true in practice. The Laffer curve as presented is simplistic in that it assumes a single tax rate and a single labor supply. Actual systems of public finance are more complex, and there is serious doubt about the relevance of considering a single marginal tax rate. In addition, revenue may well be
14596-443: The author believes economics is evolving, or should evolve. Many economists including nobel prize winners James M. Buchanan and Ronald Coase reject the method-based definition of Robbins and continue to prefer definitions like those of Say, in terms of its subject matter. Ha-Joon Chang has for example argued that the definition of Robbins would make economics very peculiar because all other sciences define themselves in terms of
14774-541: The basis that they are not grounded in fact and observations, and are therefore beyond the reach of human understanding. The cornerstone of Hume's epistemology is the problem of induction . This may be the area of Hume's thought where his scepticism about human powers of reason is most pronounced. The problem revolves around the plausibility of inductive reasoning , that is, reasoning from the observed behaviour of objects to their behaviour when unobserved. As Hume wrote, induction concerns how things behave when they go "beyond
14952-716: The behaviour and interactions of economic agents and how economies work. Microeconomics analyses what is viewed as basic elements within economies , including individual agents and markets , their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyses economies as systems where production, distribution, consumption, savings , and investment expenditure interact, and factors affecting it: factors of production , such as labour , capital , land , and enterprise , inflation , economic growth , and public policies that have impact on these elements . It also seeks to analyse and describe
15130-463: The boat this instant." A Treatise of Human Nature begins with the introduction: "'Tis evident, that all the sciences have a relation, more or less, to human nature.… Even Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of Man." The science of man , as Hume explains, is the "only solid foundation for the other sciences" and that the method for this science requires both experience and observation as
15308-517: The colonies. Physiocrats , a group of 18th-century French thinkers and writers, developed the idea of the economy as a circular flow of income and output. Physiocrats believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealth. Thus, they opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture, including import tariffs. Physiocrats advocated replacing administratively costly tax collections with
15486-407: The context of a depressed economy." A 1999 study by University of Chicago economist Austan Goolsbee , which examined major changes in high income tax rates in the United States from the 1920s onwards found no evidence that the United States was to the right of the peak of the Laffer curve. In the early 1980s, Edgar L. Feige and Robert T. McGee developed a macroeconomic model from which they derived
15664-405: The cornerstones of human thought. Matters of Fact are dependent on the observer and experience. They are often not universally held to be true among multiple persons. Hume was an Empiricist, meaning he believed "causes and effects are discoverable not by reason, but by experience". He goes on to say that, even with the perspective of the past, humanity cannot dictate future events because thoughts of
15842-420: The curve could vary over time. Complexities such as progressive taxes and possible differences in the incentive to work for different income groups complicate the task of estimation. The structure of the curve may also be changed by policy decisions. For example, if tax loopholes and tax shelters are made more readily available by legislation, the point at which revenue begins to decrease with increased taxation
16020-419: The curve is often presented as a parabolic shape, but there is no reason that this is necessarily the case. The effect of changes in tax can be cased in terms of elasticities, where the revenue-maximizing elasticity of the tax base with respect to the tax is equal to 1. This is done by differentiating R with respect to t and grouping terms to reveal that the rate of change of R with respect to t
16198-494: The curve on a napkin to illustrate the concept. Cheney did not accept the idea immediately, but it caught the imaginations of those present. Laffer professes no recollection of this napkin, but writes: "I used the so-called Laffer Curve all the time in my classes and with anyone else who would listen to me". There are historical precedents other than those cited by Laffer. Ferdinando Galiani wrote in Della Moneta (1751) that "It
16376-502: The curve should not be the sole basis for raising or lowering taxes. Supply-siders argue that in a high tax rate environment, lowering tax rates would result in either increased revenues or smaller revenue losses than one would expect relying on only static estimates of the previous tax base. This led supply-siders to advocate large reductions in marginal income and capital gains tax rates to encourage greater investment, which would produce more supply. Jude Wanniski and many others advocate
16554-640: The damage to his reputation from the quarrel with Rousseau that he would author an account of the dispute, titling it "A concise and genuine account of the dispute between Mr. Hume and Mr. Rousseau ". In 1767, Hume was appointed Under Secretary of State for the Northern Department . Here, he wrote that he was given "all the secrets of the Kingdom". In 1769 he returned to James' Court in Edinburgh, where he would live from 1771 until his death in 1776. Hume's nephew and namesake, David Hume of Ninewells (1757–1838),
16732-529: The decade covered by the paper's analysis. In 2019, economists at the Joint Committee on Taxation revisited the macroeconomic and budgetary response to the stylized 10% reduction in statutory ordinary income tax rates, but from the levels set by P.L. 115-97 . While incorporating additional tax detail within the modeling framework relative to previous analyses, the paper similarly estimates that this policy change would result in increased budget deficits - both in
16910-488: The design of modern monetary policy and are now standard workhorses in most central banks. After the 2007–2008 financial crisis , macroeconomic research has put greater emphasis on understanding and integrating the financial system into models of the general economy and shedding light on the ways in which problems in the financial sector can turn into major macroeconomic recessions. In this and other research branches, inspiration from behavioural economics has started playing
17088-415: The distinction between feeling and thinking . Controversially, Hume, in some sense, may regard the distinction as a matter of degree, as he takes impressions to be distinguished from ideas on the basis of their force, liveliness, and vivacity—what Henry E. Allison (2008) calls the "FLV criterion." Ideas are therefore "faint" impressions. For example, experiencing the painful sensation of touching
17266-506: The distribution of income among landowners, workers, and capitalists. Ricardo saw an inherent conflict between landowners on the one hand and labour and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits. Ricardo was also the first to state and prove the principle of comparative advantage , according to which each country should specialise in producing and exporting goods in that it has
17444-464: The economy can and should be studied in only one way (for example by studying only rational choices), and going even one step further and basically redefining economics as a theory of everything, is peculiar. Questions regarding distribution of resources are found throughout the writings of the Boeotian poet Hesiod and several economic historians have described Hesiod as the "first economist". However,
17622-482: The economy's tax rate led to an increase in the government budget deficit. The occurrence of this phenomenon is most famously attributed to the Reagan administration (1981–1989), during which the government deficit increased by approx. $ 2 trillion. Economics Economics ( / ˌ ɛ k ə ˈ n ɒ m ɪ k s , ˌ iː k ə -/ ) is a social science that studies the production , distribution , and consumption of goods and services . Economics focuses on
17800-525: The end of the dynasty, taxation yields a small revenue from large assessments." —Arthur Laffer, The Laffer Curve: Past, Present, and Future Laffer states that he did not invent the concept, citing numerous antecedents, including the Muqaddimah by 14th-century Islamic scholar Ibn Khaldun , John Maynard Keynes and Adam Smith . Andrew Mellon , Secretary of the Treasury from 1921 to 1932, articulated
17978-456: The end of this period Hume had attained his well-known corpulent stature; "the good table of the General and the prolonged inactive life had done their work", leaving him "a man of tremendous bulk". In 1749 he went to live with his brother in the countryside, although he continued to associate with the aforementioned Scottish Enlightenment figures. Hume's religious views were often suspect and, in
18156-483: The essay with a frank admission: I cannot say there is no vanity in making this funeral oration of myself, but I hope it is not a misplaced one; and this is a matter of fact which is easily cleared and ascertained. Diarist and biographer James Boswell saw Hume a few weeks before his death from a form of abdominal cancer . Hume told him that he sincerely believed it a "most unreasonable fancy" that there might be life after death. Hume asked that his body be interred in
18334-496: The exchange of money to barter. He also noted that there can be special circumstances in which economic activity can continue for a period at a near 100% taxation rate (for example, in war economy ). Various efforts have been made to quantify the relationship between tax revenue and tax rates (for example, in the United States by the Congressional Budget Office ). While the interaction between tax rates and tax revenue
18512-428: The existence of religious miracles played a significant part in defining the critical outlook which underpins the practice of modern science." Waldmann also argued that Hume's views "served to reinforce the institution of racialised slavery in the later 18th century." In 1766, Hume left Paris to accompany Jean-Jacques Rousseau to England. Once there, he and Rousseau fell out , leaving Hume sufficiently worried about
18690-571: The fame that he coveted. The volumes traced events from the Invasion of Julius Caesar to the Revolution of 1688 and was a bestseller in its day. Hume was also a longtime friend of bookseller Andrew Millar , who sold Hume's History (after acquiring the rights from Scottish bookseller Gavin Hamilton ), although the relationship was sometimes complicated. Letters between them illuminate both men's interest in
18868-674: The first large-scale macroeconometric model , applying the Keynesian thinking systematically to the US economy . Immediately after World War II, Keynesian was the dominant economic view of the United States establishment and its allies, Marxian economics was the dominant economic view of the Soviet Union nomenklatura and its allies. Monetarism appeared in the 1950s and 1960s, its intellectual leader being Milton Friedman . Monetarists contended that monetary policy and other monetary shocks, as represented by
19046-536: The following decades, many economists followed Keynes' ideas and expanded on his works. John Hicks and Alvin Hansen developed the IS–LM model which was a simple formalisation of some of Keynes' insights on the economy's short-run equilibrium. Franco Modigliani and James Tobin developed important theories of private consumption and investment , respectively, two major components of aggregate demand . Lawrence Klein built
19224-448: The following year, the Faculty of Advocates hired him to be their Librarian, a job in which he would receive little to no pay, but which nonetheless gave him "the command of a large library". This resource enabled him to continue historical research for The History of England . Hume's volume of Political Discourses , written in 1749 and published by Kincaid & Donaldson in 1752, was
19402-431: The forcefulness of impressions and ideas, these two categories are further broken down into simple and complex : "simple perceptions or impressions and ideas are such as admit of no distinction nor separation", whereas "the complex are the contrary to these, and may be distinguished into parts". When looking at an apple, a person experiences a variety of colour-sensations—what Hume notes as a complex impression. Similarly,
19580-533: The form of various income support and in-kind programmes, subsidies, and taxes) from 1979 to 2014. This same study showed the middle quintile's income rising 41.5% after government transfers and taxes. The Congressional Budget Office has estimated that extending the Bush tax cuts of 2001–2003 beyond their 2010 expiration would increase deficits by $ 1.8 trillion over the following decade. Economist Paul Krugman contended that supply-side adherents did not fully believe that
19758-425: The foundations of a logical argument. In regards to this, philosophical historian Frederick Copleston (1999) suggests that it was Hume's aim to apply to the science of man the method of experimental philosophy (the term that was current at the time to imply natural philosophy ), and that "Hume's plan is to extend to philosophy in general the methodological limitations of Newtonian physics ." Until recently, Hume
19936-426: The future, a similar train of events with those which have appeared in the past". However, even though custom can serve as a guide in life, it still only represents an expectation. In other words: Experience cannot establish a necessary connection between cause and effect, because we can imagine without contradiction a case where the cause does not produce its usual effect…the reason why we mistakenly infer that there
20114-509: The global economy . Other broad distinctions within economics include those between positive economics , describing "what is", and normative economics , advocating "what ought to be"; between economic theory and applied economics ; between rational and behavioural economics ; and between mainstream economics and heterodox economics . Economic analysis can be applied throughout society, including business , finance , cybersecurity , health care , engineering and government . It
20292-424: The growth in the money stock, was an important cause of economic fluctuations, and consequently that monetary policy was more important than fiscal policy for purposes of stabilisation . Friedman was also skeptical about the ability of central banks to conduct a sensible active monetary policy in practice, advocating instead using simple rules such as a steady rate of money growth. Monetarism rose to prominence in
20470-463: The importance of various market failures for the functioning of the economy, as had Keynes. Not least, they proposed various reasons that potentially explained the empirically observed features of price and wage rigidity , usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones. After decades of often heated discussions between Keynesians, monetarists, new classical and new Keynesian economists,
20648-456: The improvements of [his] talents in literature". Despite the disappointment, Hume later wrote: "Being naturally of a cheerful and sanguine temper, I soon recovered from the blow and prosecuted with great ardour my studies in the country." There, in an attempt to make his larger work better known and more intelligible, he published the An Abstract of a Book lately Published as a summary of
20826-428: The last principle, explaining that, when somebody observes that one object or event consistently produces the same object or event, that results in "an expectation that a particular event (a 'cause') will be followed by another event (an 'effect') previously and constantly associated with it". Hume calls this principle custom , or habit , saying that "custom...renders our experience useful to us, and makes us expect, for
21004-602: The literature; classical economics , neoclassical economics , Keynesian economics , the neoclassical synthesis , monetarism , new classical economics , New Keynesian economics and the new neoclassical synthesis . David Hume David Hume ( / h juː m / ; born David Home ; 7 May 1711 – 25 August 1776) was a Scottish philosopher, historian, economist, and essayist who was best known for his highly influential system of empiricism , philosophical scepticism and metaphysical naturalism . Beginning with A Treatise of Human Nature (1739–40), Hume strove to create
21182-440: The main doctrines of the Treatise , without revealing its authorship. This work contained the same ideas, but with a shorter and clearer explanation. Although there has been some academic speculation as to the pamphlet's true author, it is generally regarded as Hume's creation. After the publication of Essays Moral and Political in 1741—included in the later edition as Essays, Moral, Political, and Literary —Hume applied for
21360-426: The market (ability to produce efficiently and ability to avoid tax), then the revenues raised under tax avoidance can be greater than without avoidance, and thus the Laffer curve maximum is found to be farther right than thought. The reason for this result is that if producers with low productive abilities (high production costs) tend to have strong avoidance abilities as well, a uniform tax on producers actually becomes
21538-449: The market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene. Value theory was important in classical theory. Smith wrote that the "real price of every thing ... is the toil and trouble of acquiring it". Smith maintained that, with rent and profit, other costs besides wages also enter
21716-450: The merits of the later texts alone, rather than on the more radical formulations of his early, youthful work, dismissing his philosophical debut as juvenilia : "A work which the Author had projected before he left College." Despite Hume's protestations, a consensus exists today that his most important arguments and philosophically distinctive doctrines are found in the original form they take in
21894-581: The mid-1840s, Edward Twisleton suggested that lower local taxes in Ireland would increase the amount of taxes successfully collected towards relief. An analysis of actual collection rates has indicated that areas with higher rates did collect a lesser proportion of the tax due. The Democratic party embraced this argument in the 1880s when high revenue from import tariffs raised during the Civil War (1861–1865) led to federal budget surpluses. The Republican party, which
22072-437: The most famous passages in all economics," Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society, and for the sake of profit, which is necessary at some level for employing capital in domestic industry, and positively related to the value of produce. In this: He generally, indeed, neither intends to promote the public interest, nor knows how much he
22250-582: The only work he considered successful on first publication. In 1753, Hume moved from his house on Riddles Court on the Lawnmarket to a house on the Canongate at the other end of the Royal Mile . Here he lived in a tenement known as Jack's Land, immediately west of the still surviving Shoemakers Land. Eventually, with the publication of his six-volume The History of England between 1754 and 1762, Hume achieved
22428-427: The overall future growth of the economy, and therefore influence future government tax revenues; and ultimately, impact deficits or surpluses. In the paper's most generous estimated growth scenario, only 28% of the projected lost revenue from the lower tax rate would be recouped over a 10-year period after a 10% across-the-board reduction in all individual income tax rates. In other words, deficits would increase by nearly
22606-409: The peak rate, while five countries are exceeding it (Austria, Belgium, Denmark, Finland, Sweden). Writing in 2010, John Quiggin said, "To the extent that there was an economic response to the Reagan tax cuts, and to those of George W. Bush twenty years later, it seems largely to have been a Keynesian demand-side response, to be expected when governments provide households with additional net income in
22784-503: The pessimistic analysis of Malthus (1798). John Stuart Mill (1844) delimited the subject matter further: The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object. Alfred Marshall provided a still widely cited definition in his textbook Principles of Economics (1890) that extended analysis beyond wealth and from
22962-555: The present testimony of the senses, or the records of our memory". Hume argues that we tend to believe that things behave in a regular manner, meaning that patterns in the behaviour of objects seem to persist into the future, and throughout the unobserved present. Hume's argument is that we cannot rationally justify the claim that nature will continue to be uniform, as justification comes in only two varieties—demonstrative reasoning and probable reasoning —and both of these are inadequate. With regard to demonstrative reasoning, Hume argues that
23140-483: The present, modified by substituting the word "wealth" for "goods and services" meaning that wealth may include non-material objects as well. One hundred and thirty years later, Lionel Robbins noticed that this definition no longer sufficed, because many economists were making theoretical and philosophical inroads in other areas of human activity. In his Essay on the Nature and Significance of Economic Science , he proposed
23318-493: The press." However, he found literary success in his lifetime as an essayist, and a career as a librarian at the University of Edinburgh . These successes provided him much needed income at the time. His tenure there, and the access to research materials it provided, resulted in Hume's writing the massive six-volume The History of England , which became a bestseller and the standard history of England in its day. For over 60 years, Hume
23496-409: The price of a commodity. Other classical economists presented variations on Smith, termed the ' labour theory of value '. Classical economics focused on the tendency of any market economy to settle in a final stationary state made up of a constant stock of physical wealth (capital) and a constant population size . Marxist (later, Marxian) economics descends from classical economics and it derives from
23674-470: The problem of induction. According to Hume, we reason inductively by associating constantly conjoined events. It is the mental act of association that is the basis of our concept of causation. At least three interpretations of Hume's theory of causation are represented in the literature: Hume acknowledged that there are events constantly unfolding, and humanity cannot guarantee that these events are caused by prior events or are independent instances. He opposed
23852-429: The purest approximation to the truth that has yet been published" on the subject. The publication of Adam Smith 's The Wealth of Nations in 1776, has been described as "the effective birth of economics as a separate discipline." The book identified land, labour, and capital as the three factors of production and the major contributors to a nation's wealth, as distinct from the physiocratic idea that only agriculture
24030-439: The rate cut. In 2012, economists surveyed by the University of Chicago rejected the viewpoint that the Laffer curve's postulation of increased tax revenue through a rate cut applies to federal US income taxes of the time in the medium term. When asked whether a "cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without
24208-410: The rate of taxation. As popularized by supply-side economist Arthur Laffer , the curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. However, the shape of the curve is uncertain and disputed among economists. One implication of the Laffer curve
24386-485: The rest of the population. This assertion is supported by studies that show the income of the top 1% nearly doubling during the Reagan years, while income for other income levels increased only marginally; income actually decreased for the bottom quintile. However, a 2018 study by the Congressional Budget Office showed average household income rising 68.8% for the bottom quintile after government transfers (in
24564-524: The revenue-maximizing average federal tax rate between 32.67% and 35.21%. A 1981 article published in the Journal of Political Economy presented a model integrating empirical data that indicated that the point of maximum tax revenue in Sweden in the 1970s would have been 70%. A 2011 study by Trabandt and Uhlig published in the Journal of Monetary Economics estimated a 70% revenue maximizing rate, and estimated that
24742-474: The same amount as the tax cut in the first five years, with limited feedback revenue thereafter. Through increased budget deficits, the tax cuts primarily benefiting the wealthy will be paid for—plus interest—by taxes borne relatively evenly by all taxpayers . The paper points out that these projected shortfalls in revenue would have to be made up by federal borrowing: the paper estimates that the federal government would pay an extra US$ 200 billion in interest over
24920-412: The scope and method of economics, emanating from that definition. A body of theory later termed "neoclassical economics" formed from about 1870 to 1910. The term "economics" was popularised by such neoclassical economists as Alfred Marshall and Mary Paley Marshall as a concise synonym for "economic science" and a substitute for the earlier " political economy ". This corresponded to the influence on
25098-547: The short- and long-run - after accounting for revenue feedback from macroeconomic changes. Following the reduction of the top rate of income tax in the UK from 50% to 45% in 2013, HMRC estimated the cost of the tax reduction to be about £100 million (out of an income for this group of around £90 billion), but with large uncertainty on both sides. Robert Chote , the chairman of the UK Office for Budget Responsibility commented that Britain
25276-432: The simplified Laffer curve is usually illustrated as a straightforward symmetrical and continuous bell-shaped curve , in reality the bell-shaped curve may be skewed or lop-sided to either side of the 'maximum'. Within the reality of complex and sudden changes to tax policy over time, the response of tax revenue to tax rates may vary dramatically and is not necessarily even continuous over time, when for example new legislation
25454-421: The slave of the passions ." Hume was also a sentimentalist who held that ethics are based on emotion or sentiment rather than abstract moral principle. He maintained an early commitment to naturalistic explanations of moral phenomena and is usually accepted by historians of European philosophy to have first clearly expounded the is–ought problem , or the idea that a statement of fact alone can never give rise to
25632-486: The so-called Lucas critique and the presentation of real business cycle models . During the 1980s, a group of researchers appeared being called New Keynesian economists , including among others George Akerlof , Janet Yellen , Gregory Mankiw and Olivier Blanchard . They adopted the principle of rational expectations and other monetarist or new classical ideas such as building upon models employing micro foundations and optimizing behaviour, but simultaneously emphasised
25810-444: The source of the word economy. Joseph Schumpeter described 16th and 17th century scholastic writers, including Tomás de Mercado , Luis de Molina , and Juan de Lugo , as "coming nearer than any other group to being the 'founders' of scientific economics" as to monetary , interest , and value theory within a natural-law perspective. Two groups, who later were called "mercantilists" and "physiocrats", more directly influenced
25988-406: The state or commonwealth with a revenue for the publick services. Jean-Baptiste Say (1803), distinguishing the subject matter from its public-policy uses, defined it as the science of production, distribution, and consumption of wealth . On the satirical side, Thomas Carlyle (1849) coined " the dismal science " as an epithet for classical economics , in this context, commonly linked to
26166-525: The strategic pricing response of firms is important to consider when estimating the Laffer curve. The authors show that firms increase their prices in response to a decrease in the ad valorem tax , leading to less of a quantity increase than would otherwise be expected. The net effect is to flatten the Laffer curve and move the revenue maximum point to the right. In 2005, the United States Congressional Budget Office (CBO) released
26344-528: The street was named after Hume. His tomb stands, as he wished it, on the southwestern slope of Calton Hill , in the Old Calton Cemetery . Adam Smith later recounted Hume's amusing speculation that he might ask Charon , Hades ' ferryman, to allow him a few more years of life in order to see "the downfall of some of the prevailing systems of superstition". The ferryman replied, "You loitering rogue, that will not happen these many hundred years.… Get into
26522-408: The subject of mathematical methods used in the natural sciences . Neoclassical economics systematically integrated supply and demand as joint determinants of both price and quantity in market equilibrium, influencing the allocation of output and income distribution. It rejected the classical economics' labour theory of value in favour of a marginal utility theory of value on the demand side and
26700-402: The subject or different views among economists. Scottish philosopher Adam Smith (1776) defined what was then called political economy as "an inquiry into the nature and causes of the wealth of nations", in particular as: a branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people ... [and] to supply
26878-471: The subject": Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Robbins described the definition as not classificatory in "pick[ing] out certain kinds of behaviour" but rather analytical in "focus[ing] attention on a particular aspect of behaviour, the form imposed by the influence of scarcity ." He affirmed that previous economists have usually centred their studies on
27056-822: The subsequent development of the subject. Both groups were associated with the rise of economic nationalism and modern capitalism in Europe. Mercantilism was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing inexpensive raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in
27234-618: The success of the History . In 1762 Hume moved from Jack's Land on the Canongate to James Court on the Lawnmarket . He sold the house to James Boswell in 1766. From 1763 to 1765, Hume was invited to attend Lord Hertford in Paris , where he became secretary to the British embassy in France . Hume was well received among Parisian society, and while there he met with Isaac de Pinto . In 1765, Hume served as
27412-440: The supply-side tax cut was in effect, additional revenue would start to fall, manna-like, from the heavens. Since January, I had been explaining that there is no literal Laffer curve." Stockman also said that "Laffer wasn't wrong, he just didn't go far enough" (in paying attention to government spending). Some have criticized elements of Reaganomics on the basis of equity. For example, economist John Kenneth Galbraith believed that
27590-481: The tax cut was repealed in 2017 by a bipartisan super majority in the Kansas legislature. Supply-side economics rose in popularity among Republican Party politicians from 1977 onwards. Prior to 1977, Republicans were more split on tax reduction, with some worrying that tax cuts would fuel inflation and exacerbate deficits. Supply-side economics is a school of macroeconomic thought that argues that overall economic well-being
27768-515: The tax cut", none of the economists surveyed agreed and 71% disagreed. According to Harvard University economist Jeffrey Frankel , a substantial majority of economists reject the proposition that income taxes are so high in the United States that tax cuts will pay for themselves. One of the conceptual uses of the Laffer curve is to determine the rate of taxation that will raise the maximum revenue (in other words, "optimizing" revenue collection). The revenue maximizing tax rate should not be confused with
27946-566: The two brothers and their sister on her own. Hume changed his family name's spelling in 1734, as the surname 'Home' (pronounced as 'Hume') was not well-known in England. Hume never married and lived partly at his Chirnside family home in Berwickshire, which had belonged to the family since the 16th century. His finances as a young man were very "slender", as his family was not rich; as a younger son he had little patrimony to live on. Hume attended
28124-491: The uniformity principle cannot be demonstrated, as it is "consistent and conceivable" that nature might stop being regular. Turning to probable reasoning, Hume argues that we cannot hold that nature will continue to be uniform because it has been in the past. As this is using the very sort of reasoning (induction) that is under question, it would be circular reasoning . Thus, no form of justification will rationally warrant our inductive inferences. Hume's solution to this problem
28302-467: The war is not winnable or if the expected costs outweigh the benefits, the deciding actors (assuming they are rational) may never go to war (a decision ) but rather explore other alternatives. Economics cannot be defined as the science that studies wealth, war, crime, education, and any other field economic analysis can be applied to; but, as the science that studies a particular common aspect of each of those subjects (they all use scarce resources to attain
28480-410: The ways in which ordinary propositions about objects, causal relations, the self, and so on, are semantically equivalent to propositions about one's experiences. Many commentators have since rejected this understanding of Humean empiricism, stressing an epistemological (rather than a semantic ) reading of his project. According to this opposing view, Hume's empiricism consisted in the idea that it
28658-455: The widely accepted theory of causation that 'all events have a specific course or reason'. Therefore, Hume crafted his own theory of causation, formed through his empiricist and sceptic beliefs. He split causation into two realms: "All the objects of human reason or enquiry may naturally be divided into two kinds, to wit, Relations of Ideas, and Matters of Fact." Relations of Ideas are a priori and represent universal bonds between ideas that mark
28836-505: The word Oikos , the Greek word from which the word economy derives, was used for issues regarding how to manage a household (which was understood to be the landowner, his family, and his slaves ) rather than to refer to some normative societal system of distribution of resources, which is a more recent phenomenon. Xenophon , the author of the Oeconomicus , is credited by philologues for being
29014-460: The work of Karl Marx . The first volume of Marx's major work, Das Kapital , was published in 1867. Marx focused on the labour theory of value and theory of surplus value . Marx wrote that they were mechanisms used by capital to exploit labour. The labour theory of value held that the value of an exchanged commodity was determined by the labour that went into its production, and the theory of surplus value demonstrated how workers were only paid
29192-554: Was "strolling across the summit of the Laffer curve", implying that UK tax rates had been close to the optimum rate. Laffer has presented the examples of Russia and the Baltic states, which instituted a flat tax with rates lower than 35% around the same time that their economies started growing. He has similarly referred to the economic outcome of the Kemp-Roth tax cuts , the Kennedy tax cuts ,
29370-794: Was a co-founder of the Royal Society of Edinburgh in 1783. He was a Professor of Scots Law at Edinburgh University and rose to be Principal Clerk of Session in the Scottish High Court and Baron of the Exchequer. He is buried with his uncle in Old Calton Cemetery. In the last year of his life, Hume wrote an extremely brief autobiographical essay titled "My Own Life", summing up his entire life in "fewer than 5 pages"; it contains many interesting judgments that have been of enduring interest to subsequent readers of Hume. Donald Seibert (1984),
29548-454: Was afflicted with a ravenous appetite and palpitations . After eating well for a time, he went from being "tall, lean and raw-bon'd" to being "sturdy, robust [and] healthful-like." Indeed, Hume would become well known for being obese and having a fondness for good port and cheese, often using them as philosophical metaphors for his conjectures. Despite having noble ancestry, Hume had no source of income and no learned profession by age 25. As
29726-501: Was born on 26 April 1711, as David Home, in a tenement on the north side of Edinburgh 's Lawnmarket . He was the second of two sons born to Catherine Home ( née Falconer ), daughter of Sir David Falconer of Newton, Midlothian and his wife Mary Falconer (née Norvell), and Joseph Home of Chirnside in the County of Berwick , an advocate of Ninewells . Joseph died just after David's second birthday. Catherine, who never remarried, raised
29904-410: Was coined by Jude Wanniski , who was also present at the meeting. The basic concept was not new; Laffer himself notes antecedents in the writings of the 14th-century social philosopher Ibn Khaldun and others. Ibn Khaldun, a 14th-century philosopher, wrote in his work The Muqaddimah : "It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At
30082-596: Was common at his time, he became a merchant 's assistant, despite having to leave his native Scotland. He travelled via Bristol to La Flèche in Anjou , France. There he had frequent discourse with the Jesuits of the College of La Flèche . Hume was derailed in his attempts to start a university career by protests over his alleged " atheism ", also lamenting that his literary debut, A Treatise of Human Nature , "fell dead-born from
30260-414: Was concerned that the administration did not pay enough attention to cutting government spending. He maintained that the Laffer curve was not to be taken literally—at least not in the economic environment of the 1980s United States. In The Triumph of Politics , he writes: "[T]he whole California gang had taken [the Laffer curve] literally (and primitively). The way they talked, they seemed to expect that once
30438-469: Was envoy to the courts of Turin and Vienna . At that time Hume wrote Philosophical Essays Concerning Human Understanding , later published as An Enquiry Concerning Human Understanding . Often called the First Enquiry , it proved little more successful than the Treatise , perhaps because of the publication of his short autobiography My Own Life , which "made friends difficult for the first Enquiry". By
30616-421: Was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. The Reverend Thomas Robert Malthus (1798) used the concept of diminishing returns to explain low living standards. Human population , he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of
30794-460: Was not unacceptable to the young and careless, as well as to the studious and literary", noting of his complex relation to religion, as well as to the state, that "though I wantonly exposed myself to the rage of both civil and religious factions, they seemed to be disarmed in my behalf of their wonted fury". He goes on to profess of his character: "My friends never had occasion to vindicate any one circumstance of my character and conduct." Hume concludes
30972-892: Was productive. Smith discusses potential benefits of specialisation by division of labour , including increased labour productivity and gains from trade , whether between town and country or across countries. His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of a theory of the functions of firm and industry " and a "fundamental principle of economic organization." To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation of resource-allocation theory—that, under competition , resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses in equilibrium (adjusted for apparent differences arising from such factors as training and unemployment). In an argument that includes "one of
31150-437: Was recognised as well as the traditional Keynesian insistence that fiscal policy could also play an influential role in affecting aggregate demand . Methodologically, the synthesis led to a new class of applied models, known as dynamic stochastic general equilibrium or DSGE models, descending from real business cycles models, but extended with several new Keynesian and other features. These models proved useful and influential in
31328-447: Was seen as a forerunner of logical positivism , a form of anti- metaphysical empiricism. According to the logical positivists (in summary of their verification principle ), unless a statement could be verified by experience, or else was true or false by definition (i.e., either tautological or contradictory ), then it was meaningless. Hume, on this view, was a protopositivist, who, in his philosophical writings, attempted to demonstrate
31506-405: Was the dominant interpreter of English history. He described his "love for literary fame" as his "ruling passion" and judged his two late works, the so-called "first" and "second" enquiries, An Enquiry Concerning Human Understanding and An Enquiry Concerning the Principles of Morals , as his greatest literary and philosophical achievements. He would ask of his contemporaries to judge him on
31684-400: Was then based in the protectionist industrial Northeast, argued that cutting rates would lower revenues. In 1924, Secretary of Treasury Andrew Mellon wrote: "It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the government, and that more revenue may often be obtained by lower rates". Exercising his understanding that "73% of nothing
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