2008-01-12

Iceland reduces taxes to collect more

Look at this graph.


Over the past 20 years, Iceland has reduced its corporate income tax rate from 45% down to 18%. This graph shows how tax revenue has risen, dramatically so, with every decrease of the tax rate.

This is an example of the Laffer curve effect. When taxes are high, people are (1) less motivated to produce, and (2) to the extent they do produce, they are motivated to hide income to avoid taxation.

When taxes are low, people are (1) more motivated to produce, and (2) have less incentive to expend effort trying to avoid taxation, as it becomes easier and cheaper to just pay the tax.

1 comment:

Anonymous said...

Saj to je logično. Pri bi pa naše vlade najraje zvišale davke. Kot da ni že dovolj dela na črno... In več kot zaslužiš, več moraš plačati prispevkov (ne le absolutni delež, tudi relativni od bruto plače).