The laffer curve

In this chapter, we discuss the Laffer Curve. We look at the effect of AI on the curve. Arthur Laffer advanced an argument that changes in tax rates affect government revenues differently in the short term and an extended basis. Initially, the increase in the tax rate would be followed by an increase in tax revenues generated by the government. This would continue until it reaches the prohibitive point. Beyond the prohibitive point, additional taxes result in reduced government revenue. If this continues, the curve shows that government revenue would decline until the point of zero, where the government would generate no revenue. The introduction of intelligent machines, such as the robotic infrastructure consisting of AI, to perform tasks that are performed by human beings neutralizes the Laffer Curve. With this introduction, it becomes apparent that the Laffer Curve was not designed to deal with such a development. With this introduction, no matter how many movements are in the personal income tax rate, until the government introduces taxes, say on computerized robots, it will not derive the revenue it was deriving prior to the introduction of intelligent machines. This poses a challenge to the theory. In the case of corporate tax, we are of the view that the introduction of AI does not have much effect. The tenets of the theory will still hold.