Show HN: Economic Curves Simulator: Armey and Laffer
7 hours ago
- #taxation
- #economics
- #government-spending
- The Armey Curve describes the relationship between government spending and economic growth, showing an inverted U-shape where growth initially increases with spending but declines after an optimal point.
- Optimal government spending is typically between 20% and 30% of GDP, varying by country and context.
- The mathematical model of the Armey Curve is Y = β₀ + β₁ · G + β₂ · G², where β₀ represents natural growth without government intervention.
- Policy implications include the risks of both undersized (lack of public goods) and oversized (inefficiency, crowding out) governments.
- The Laffer Curve illustrates the relationship between tax rates and consent to taxation, also showing an inverted U-shape.
- Consent to taxation rises initially due to social contract fulfillment, economic productivity gains, and perceived fairness, but declines beyond an optimal tax rate.
- The Laffer Curve's mathematical model is R = β₀ + β₁ · t + β₂ · t², with negative values indicating theoretical economic dysfunction.
- Historical context includes the Laffer Curve's popularization in the 1970s and its roots in earlier economic thought.
- Both curves emphasize finding optimal levels (spending or taxation) to maximize economic growth or government revenue without causing inefficiency or disincentives.