It’s Not Really a Taxingly Difficult Subject
10th September 2013
Don Boudreaux, a Real Economist, lays out some inconvenient truth.
Among the most economically naive calculations that people (including government officials) make is to estimate the growth in tax revenues based on the assumption that nothing changes beyond a hike in the tax. So, for example, if 10,000 pounds of apples are sold each week in Hometown, USA, and the government of Hometown imposes a 50-cent per pound excise tax on apple sales, it’s tempting for the economically uninformed to conclude that this tax will raise the weekly revenues of Hometown’s government by $5,000. A staple of any decent principles-of-microeconomics class is to show that such a static calculation is mistaken. Any such static calculation is arithmetic masquerading as economics.