NCPA - National Center for Policy Analysis

Supply-Side Economics Has Supporters in Academia

September 29, 2003

Contrary to comments of pundits from New York Times Magazine and American Prospect magazine, supply-side economics has its supporters in academia, says Bruce Bartlett. In fact, he found many published examples from the International Monetary Fund, which is not known as a hotbed of supply-side economics.

In a recent paper, "An Analysis of the Underground Economy and Its Macroeconomic Consequences," the IMF says: "Our model simulations show that in the absence of budgetary flexibility to adjust expenditures, raising tax rates too high drives firms into the underground economy, thereby reducing the tax base."

In other words, the Laffer Curve works. Nor is this the only instance in which the IMF has acknowledged fundamental truths about supply-side economics:

  • As long ago as 1987, it published an entire book entitled, Supply-Side Tax Policy: Its Relevance to Developing Countries.
  • In 1997, it published a paper on Social Security reform in France that contained this finding: "The simulation results.... point to the presence of 'self-financing,' whereby reductions in various tax rates lead to lower budget deficits in the long run, as the result of an expanding tax base and lower unemployment insurance outlays."
  • In 1999, it held a seminar on trade policy that came to this conclusion: "A number of countries maintain tariff rates that exceed revenue maximizing levels. These countries could liberalize, at least initially, without significant adverse consequences for revenues from trade taxes."

Suffice it to say that supply-side economics is far from the academic outcast its enemies wish it was, says Bartlett.

Source: Bruce Bartlett, "Supply-Side Economics Has Supporters In Academia," National Center for Policy Analysis, September 29, 2003.


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