Arthur Laffer brings con­ser­va­tive ad­vice to Ukraine

Kyiv Post Legal Quarterly - - Contents - By Ilya Timtchenko timtchenko@kyiv­

Con­ser­va­tive econ­o­mist Arthur Laffer rock­eted to fame in the 1980s, ad­vis­ing U.S. Pres­i­dent Ron­ald Rea­gan and United King­dom Prime Min­is­ter Mar­garet Thatcher on tax poli­cies.

To­day Laffer is offering his views to Ukraine’s Fi­nance Min­is­ter Natalie Jaresko.

His Laffer Curve in­ven­tion – a slope that shows how the gov­ern­ment could ac­tu­ally save by cut­ting its higher tax rates – was what ul­ti­mately brought Laffer fame in the world of eco­nomics.

Laffer is the founder and chair­man of Laffer As­so­ciates, an in­vest­ment re­search and con­sult­ing firm, and advises Repub­li­can pres­i­den­tial can­di­dates.

“The pomp, and pageantry, and the big pic­tures and the great din­ners… that’s not where Ukraine is go­ing to get its an­swers,” Laffer told the Kyiv Post in a Skype in­ter­view from his of­fice in Nashville, Ten­nessee.

Whether it is the U.S., Great Bri­tain or Ukraine, Laffer looks at five ar­eas when he an­a­lyzes coun­tries: taxes, gov­ern­ment spend­ing, mon­e­tary pol­icy, trade pol­icy and reg­u­la­tions.

In all of th­ese sec­tors, Ukraine is weak com­pared to its Western neigh­bors, he said.

“What one wants to do is col­lect taxes in a way that does the least dam­age to the econ­omy,” Laffer, 75, said. “We tax peo­ple who speed on high­ways to get them to stop speed­ing. We tax cig­a­rettes to stop peo­ple from smok­ing. Why on earth do we tax peo­ple who earn in­come and busi­nesses that em­ploy peo­ple or en­trepreneurs that in­vest?”

Post-soviet economies have gen­er­ally per­formed poorly, with pop­u­la­tion de­clines serv­ing as un­healthy in­di­ca­tors.

Ukraine is ranked sec­ond among coun­tries with the high­est death rates by the U.S. Cen­tral In­tel­li­gence Agency World Fact­book.

Ukraine’s out­put pro­duc­tion is also very low rel­a­tive to other Euro­pean coun­tries. Ukraine’s $3,083 gross do­mes­tic prod­uct per capita in 2014 was about one-eighth of the av­er­age Euro­pean one, Laffer said.

How the tax sys­tem works can bring pros­per­ity or fur­ther plun­der­ing, he said.

That's why he fa­vors go­ing back to the ba­sics of “hav­ing the low­est pos­si­ble tax rate on the broad­est pos­si­ble tax base” as the best route to peo­ple declar­ing their in­comes and pay­ing their taxes.

Arthur Laffer speaks at the 12th Yalta Euro­pean Strat­egy con­fer­ence on Sept. 11 in Kyiv. (Volodymyr Petrov)

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