Supply-siders in our midst

Something that puzzles me about Finnish political debate is the way the National Coalition Party (in particular) espouses supply-side economics without getting called on it by the left.

Coalition chair and Finance Minister Jyrki Katainen sure sounds like he subscribes to the Laffer curve. He's not crude enough to directly say, "Hey, let's raise taxes so tax revenues will go up!" Instead he and likeminded folk say something like, "In order to get Finland working, we need to increase the employment rate by cutting income taxes. Only be reducing unemployment can we maintain our current economic growth, which in turn is the only way we'll be able to pay for the welfare state." But it's the same thing; they just spell out the supposed mechanism.

Another example of the Coalition tying its advocacy for right-wing economic policies now to being able to pursue left-wing economic goals in the future is when Coalitionists contrast cutting debt with increasing welfare spending. In that case, however, the Social Democratic Party challenges the argument quite forcefully. When it comes to tax cuts, however, the Social Democrats seem awfully quiet. Matti Vanhanen's first government, in which Social Democratic chair Eero Heinäluoma served as the Finance Minister, also cut taxes with the intention of stimulating economic growth.

US liberals, who are in many ways to the right of Finnish Social Democrats, don't go along with the Laffer curve, so why isn't it more controversial in Finland? Given that the Laffer curve is a curve, it might be easier to argue for the economically beneficial effects of tax cuts in a country where taxes are higher, but you'd still expect left-wingers to challenge the notion, wouldn't you?


Anonymous said...

Everyone goes along with the Laffer Curve. The question is simply where on the curve we are at the moment.

Ari said...

If we limit ourselves to the notion that that tax revenues are maximized by some tax rate that is between zero percent and 100 percent, then we'll get a lot of subscribers - but that doesn't allow us to say much of anything about what sort of effect a tax cut now would have on tax revenues. If we consider the Laffer curve to be an inverted parabola, which is how it's commonly portrayed, then I think quite a few people won't go along with it.