Principles of Economics- Mankiw (5th) 168

Principles of Economics- Mankiw (5th) 168 - 174 PA R T T H...

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174 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE those taxpayers facing the highest tax rates. In addition, Laffer’s argument may be more plausible when applied to other countries, where tax rates are much higher than in the United States. In Sweden in the early 1980s, for instance, the typical worker faced a marginal tax rate of about 80 percent. Such a high tax rate provides a substantial disincentive to work. Studies have suggested that Sweden would indeed have raised more tax revenue if it had lowered its tax rates. These ideas arise frequently in political debate. When Bill Clinton moved into the White House in 1993, he increased the federal income tax rates on high- income taxpayers to about 40 percent. Some economists criticized the policy, arguing that the plan would not yield as much revenue as the Clinton adminis- tration estimated. They claimed that the administration did not fully take into W ORLD LEADERS NEED TO UNDERSTAND the costs of taxation, even if the world
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