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The Rahn curve is a
graph Graph may refer to: Mathematics *Graph (discrete mathematics), a structure made of vertices and edges **Graph theory, the study of such graphs and their properties *Graph (topology), a topological space resembling a graph in the sense of discre ...
used to illustrate an
economic theory Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
, proposed in 1996 by American economist Richard W. Rahn, which suggests that there is a level of
government spending Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...
that maximizes
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
. The theory is used by
classical liberals Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econo ...
to argue for a decrease in overall government spending and
taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
. The inverted-U-shaped curve suggests that the optimal level of government spending is 15–25% of
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
.
with subtitles
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See also

*
Government spending Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...
* Laffer curve *
Tax cut A tax cut represents a decrease in the amount of money taken from taxpayers to go towards government revenue. Tax cuts decrease the revenue of the government and increase the disposable income of taxpayers. Tax cuts usually refer to reductions i ...


References

{{reflist * Pettinger, Tejvan:
The Rahn Curve – Economic Growth and Level of Spending
', economicshelp.org, April 23, 2008.


External links


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freedomandprosperity.org Economics curves Fiscal policy