Monday, January 08, 2007

A Laffer minute

Good analysis from a Heritage Foundation bod at Fox:

The International Monetary Fund is supposed to help nations grow faster, but the international bureaucracy is frequently criticized because its officials often tell poor countries to raise taxes and devalue their currencies.

This characterization may be a bit unfair, since the IMF has more sensible views on issues such as trade, regulation and privatization, but it’s also true that the organization generally is seen as an obstacle to market-based fiscal policy.

A good example is a recent IMF study attacking the flat tax.

The IMF study actually reveals strong evidence that flat tax reforms have yielded Laffer Curve effects. But the authors attempt to mislead readers by claiming that tax reform is successful only if the revenue feedback is at least 100 percent. Even more astonishing, they assume that this revenue feedback effect should happen within one year of reform. So even though taxable income climbed significantly in most flat-tax nations and income-tax revenue generally has exceeded expectations, readers are supposed to conclude that the flat tax is a failure.

It’s unclear why the IMF is hostile to pro-growth policy.

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