Quotulatiousness

June 9, 2010

QotD: The transition curve of higher taxes

Filed under: Britain, Economics, Government, Quotations — Tags: , , — Nicholas @ 17:21

The point where things start to go wrong seems to be about 50%. Above that people get serious about tax avoidance. The reason is that the payoff for avoiding tax grows hyperexponentially (x/1-x for 0 < x < 1). If your income tax rate is 10%, moving to Monaco would only give you 11% more income, which wouldn't even cover the extra cost. If it's 90%, you'd get ten times as much income. And at 98%, as it was briefly in Britain in the 70s, moving to Monaco would give you fifty times as much income. It seems quite likely that European governments of the 70s never drew this curve.

Paul Graham, “Why Startups Condense in America”, 2006-05

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