Friday, August 13, 2010

"As I See It' - The Laffer Curve


The Laffer Curve, according to Wikipedia, "is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of Taxable Income Elasticity (that taxable income will change in response to changes in the rate of taxation). The curve is constructed by thought experiment. First, the amount of tax revenue raised at the extreme tax rates of 0% and 100% is considered. It is clear that a 0% tax rate raises no revenue, but the Laffer curve hypothesis is that a 100% tax rate will also generate no revenue because at such a rate there is no longer any incentive for a rational taxpayer to earn any income, thus the revenue raised will be 100% of nothing."
Now putting economics aside, I wonder if the same theory can be applied to the population of a community. At one end of the curve there is 0 percent taxation. With no revenue, a City cannot provide services needed and desired by the citizens, so the population drops. At the other end of the curve, there is 100 percent taxation, therefore citizens cannot afford to live in the community and again, the population drops. But somewhere on the curve is a "happy medium" in which taxation is enough to provide the services "needed" by the citizens, but at a point in which taxation is not so great that it contributes to a decline in population.
If this "Laffer Curve" can be applied to a theory regarding population, where does our community fall on the curve?

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