Sunday, March 02, 2008

Another great budget by P Chidambaram ..

One guiding factor in the budget presented by the Finance Minister this year is the concern for socially weaker sectors in the society and more especially the farming community who have been doing so much to the country. The announcement of the Rs. 60,000 crore waiver of farmers loans is something unheard of in earlier budgets. That can be made up with just two years of profitable running of the Indian Railways, by proper utilisation of it's resources and infrastructure.

Laffer curve effect is a very special phenomenon observed. As the tax rates are reduced, the tax collecton a s a whole increases. Last year when the taxes were reduced, the complaince and hence collection increased by almost 40 percent. This year the collection is supposed to be much more.

The Laffer curve tells us that tax revenues have increased with decreasing tax rates and there is an optimum level of tax rates at which collection will be maximum. Laffer , a Raegan time economist, attributes this not to his own work but to a 14 th century Islamic scholar Ibn Kaldun and more recently to Maynard Keynes.

Kind regards,

George Easaw

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