Laffer Curves in Everything

2016-05-09 09.45.40

What if you knew that applying more effort would only make things worse?

How would you proceed?
Would you heed the warning?
Would you stop?
Or would you continue applying effort blind to the deteriorating results?

I achieved burn out by expecting outsized results from an ever heroic effort.

At the time, I didn’t know about the Laffer Curve – an economic model for thinking about the relationship between tax rates and the maximum amount of money collected at that rates. It states that sparse revenue is collected at extremely low tax rates and extremely high tax rates – for two different reasons. Low rates encourage compliance, high rate encourage evasion. Somewhere between those two extremes is a point – or points – where both tax rates and collected revenues are both as high as they can go.

The model acknowledges maximum results (revenues) and maximum effort (rates) are not directly related and above a certain point more effort provides a worse result.

For simplicity, the Laffer Curve is depicted as a symmetrical with a single peak at 50%. That doesn’t mean it is. There could be multiple peaks, it could be wavy, or shifted to one side. The actual curve could be highly dynamic and responsive. Finding the sweet spot requires continual adjustments.

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The Laffer curve isn’t just a model for taxation, it’s an effective model for thinking about any situation where you want the highest, sustainable returns.

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Also, Nicholas Bate.

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