Wednesday, March 31, 2010

Mankiw on Taxes

There's been an interesting exchange in the blogosphere on taxes originating with this post from Greg Mankiw. Mankiw makes the reasonable version of Arthur Laffer's point when he writes:

"High tax rates tend to depress GDP. Looking at taxes as a percentage of GDP may mislead us into thinking we can increase tax revenue more than we actually can"

A fair point. But that's when things start to get weird. He follows up with:

"For some purposes, a better statistic may be taxes per person, which we can compute using this piece of advanced mathematics: Taxes/GDP x GDP/Person = Taxes/Person"

Basically, more productive, more advanced, wealthier countries will count as having more burdensome taxes than other countries, holding all else equal. This is inherent in his metric - a logical necessity of the metric that he thinks may be "better" under some circumstances. I really hope we learn that someone hacked into Mankiw's blog and posted this before Greg noticed. This is pretty weird, and unfortunate coming from someone like him. This was first brought to my attention when I saw the inflammatory title of Matt Yglesias's post on it in my blogroll. I very often disagree with Yglesias on economics, so I thought Yglesias must have read something wrong. I often agree with Brad DeLong, so when I saw it next from him on my blogroll, I got more curious. Then I scrolled down to read the original Mankiw post, and sure enough: weird, crazy, and makes you wonder about the Harvard Economics department.

*I actually don't wonder about the Harvard Economics Department. I have a great deal of respect for Mankiw, I often agree with him, and I'm sure this was just one of those posts that slipped out before he got the chance to think about it.

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