Monday, July 26, 2010

The fallacy of supply-side economics

Martin Wolf and Paul Krugman present (yet again) convincing evidence that cuts in taxes do not pay for themselves: they only result in a permanently lower tax revenue relative to what would have been achieved with higher taxes.

Martin Wolf quotes Greg Mankiw, chairman of the Council of Economic Advisers under George W. Bush, who "has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”".

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