Footnotes

2 The best analysis of the economic effects of supply-side policies is in Lawrence Lindsey, The Growth Experiment: How the New Tax Policy Is Transforming the U.S. Economy (New York: Basic Books, 1990). Lindsey began his research convinced that supply-side responses were negligible. After examining the evidence, he became one of the strongest proponents of supply-side policies. Lindsey concluded that, because of the dynamic economic response to the tax cuts, 70 percent of the potential direct revenue loss from the 1981 tax reductions was regained.back

3 By comparison, note that the average burden of taxation in Canada is about 25 percent higher. Smuggling and noncompliance are widespread. It is estimated that half of the Canadian budget deficit arises from noncompliance, including unreported barter agreements, ("I’ll build your barn if you build mine") or unreported cash transactions. Heavy taxation of cigarettes (five times the U.S. level) and liquor encourages otherwise law-abiding citizens to cross the U.S. border or head for the Indian reservations. About a quarter of the tobacco and whiskey market is served by smugglers. Wall Street Journal, January 4, 1993, p. A8.back

4 See Richard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and Practice (New York: McGraw Hill, 1980), especially ch. 14, "Excess Burden and Efficiency," and ch. 31, "Fiscal Effects on Capacity Output," and references therein; and A. Sandmo,"Optimal Taxation - An Introduction to the Literature," Journal of Public Economics, July/August 1976.back

5 With few exceptions, state and local governments use the federal definition of income and rely on the federal government as protagonist in litigating whether particular income is taxable.back

6 Proposals to enact national health insurance, if passed, would push taxes as a percent of GNP above the 50 percent level.back

7 The trouble with this measure is that a joint return counts as a single filing whether or not the wife has income. If the wife works, she will be counted in the labor force but will be underrepresented in the tax base measure.back

8 In 1913, each tax filer was required to sign an oath attesting to the veracity of the return and all 360,000 returns were audited.back

9 When the Mafia ran the numbers rackets, its"juice" was 10 percent, but the states retain about 50 percent of the money garnered from Lotto!back

10 See E. A. Peden and M. D. Bradley,"Government Size, Productivity and Economic Growth: the Post-War Experience," Public Choice, Vol. 61, 1989, pp. 229-45.back

11 Economic sclerosis infects Europe as well, and now one hears of the end of the German miracle. While the size of government is larger in Europe, much of the difference is due to the European custom of providing national health care. If private spending on health care were added to government expenditures, the size of the U.S. government as a share of GDP would be comparable.back

12 See the discussion in Lindsey, The Growth Experiment, pp. 117-18.back

13 Peter J. Ferrara, ed., Issues ‘94: The Candidate’s Briefing Book (Washington, DC: Heritage Foundation, 1994), p. 122.back

14 The cost of complying with federal regulation was estimated at $580 billion in 1993. See Thomas D. Hopkins,"The Cost of Federal Regulation," Journal of Regulation and Social Costs, Vol. 2, No. 1, March 1992.back

15 Author’s conversation with gasoline station owners.back

16 Public goods have the characteristics of nonrivalry and nonexclusion in consumption. Thus, my viewing a monument does not reduce your view and, since I can’t be stopped from looking at it, no price can be charged for the view. Very few goods have these characteristics: national defense, a system of weights and measures, the legal system, etc. Many goods have a publicness about them but are provided privately (e.g., a golf country club). Public goods should not be confused with goods and services provided at public expense (e.g., schooling, health care).back

17 Rent-seeking is the attempt to gain, through government action, more income than one could otherwise get for a good or service.back

18 Gerald W. Scully, The Market Structure of Sports (Chicago: University of Chicago Press, 1994).back

19 See P. J. Grossman, "The Optimal Size of Government," Public Choice, Vol. 56, 1987, pp. 193-200 and E. A. Peden, "Productivity in the United States and Its Relationship to Government Activity: An Analysis of 57 Years, 1929-1986," Public Choice, Vol. 69, 1991, pp. 153-73.back

20 Personal conversation with the author.back

21 A simple extension of the model [see the Appendix] shows that this is so. As noted in the Appendix, revenue to the state is G = tY. Converting to logs, substituting equation (3) for 1nY, and differentiating 1nG with respect to t yields

			ð1nG/ðt = b/t - c(1 - t) + 1/t = 0.
		Solving for the revenue-maximizing tax rate, t**, yields
			t** = 1 + b/(1 + b + c).
		Clearly, t* < t**; i.e., the growth-maximizing tax rate is less than the revenue-maximizing tax rate.

22

  ð1nY/ðt = [(ð1nY/ð1nt) (ð1nt/ðt)] +
	 [(ð1nt/ð1n(1 - t)) (ð1n(1 - t)/ð(1 - t))
	(ð(1 - t)/ðt)]
	= b/t - c/(1 - t) = 0.