On the Use and Misuse of the Laffer Curve

The main use to which the economics profession has put the Laffer curve (at least if you judge by a representative sample of principles and intermediate textbooks) is to choose that tax rate which maximizes governmental revenues. To say the least, this enterprise cannot be justified by a resort to positive economics. Necessarily associated to a Laffer curve, is an income curve over the same (tax rate) domain, which we illustrate and that starkly demonstrates, the conflict between the government and the citizenry over optimal tax policy. As an empirical issue, our paper casts doubt on the claim that tax rate reductions in the 1980s were responsible for budget deficits