September 27, 2010
- A d v e r t i s e m e n t
A successful parasite must keep its host alive, finding the point where it can maximize its intake without killing off its source of sustenance. So, too, with governments taxing their citizenry. With taxation, governments can reach the point where higher rates produce less revenue.
An academic study found that a tax increase of just 1% of GDP causes a recession and then a permanent loss of 1.84% of GDP compared to what it would have been without the tax increase. The results of this study have some really broad and interesting implications.
The punchline is that this study was done by Christina and David Romer. You might remember Christina as President Obama’s first chair of his Council of Economic Advisers. David, her husband, is on the recession dating committee of the National Bureau of Economic Research (NBER), the outfit that everyone relies on to say when recessions start and stop. (The date of this study’s release was June 2010. Ms. Romer announced her resignation from Obama’s administration in August 2010.)
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