There are two reasons why I periodically write about the Laffer Curve.

• I want my left-leaning friends to understand to understand that higher tax rates on productive behavior will lead to less taxable income and some foregone tax revenue.
• I want my right-leaning friends to understand that tax cuts are only self-financing in rare cases and that some tax cuts generate very little if any revenue feedback.

Actually, there’s also a third reason.

• I want everyone to understand that it is preferable to be at the growth-maximizing tax rate rather than at the revenue-maximizing tax rate.

With this in mind, let’s look at some new research from the United Kingdom.

Christopher Snowdon from the London-based Institute of Economic Affairs has a new report entitled The Laffer Curve in Action.

One of his examples is taxation of cigarettes. Here are some excerpts.

Many countries have used taxation as a means of reducing cigarette sales and smoking rates. However, in some countries high rates of tax have driven smokers towards illicit tobacco. …In the UK, real-terms revenue raised from tobacco duty fell by 40% between 2021 and 2025, with the OBR acknowledging that ‘the duty rate for cigarettes is beyond the peak of the “Laffer curve”’. Some of this is accounted for by a 20% drop in the number of adult smokers between 2021 and 2024, but a significant factor is high tax making illicit tobacco more appealing. The number of smokers who bought tobacco on the black market doubled between and alone, and according to a study conducted by KPMG, almost a third of cigarettes consumed in Britain are now illicit.

Here are three charts that tell a very powerful story. Figure 8 shows that cigarette taxes have more than tripled in nominal terms and almost doubled when accounting for inflation.

Yet tobacco tax revenue has not increased in proportion to the tax rate.

Indeed, revenues are drifting downward.

Since tobacco taxes are motivated in part by a desire to reduce smoking (the philosoraptor nods wisely), some people look at the two previous charts and declare victory.

Yet Figure 10 shows that the number of illegal cigarettes has dramatically increased.

The bottom line is that many people are still smoking, but they have figured out how to escape punitive taxes.

Another example from the report is landfill taxes. Here are some relevant passages.

The UK introduced a landfill tax in 1996. Initially set at £7 per tonne, it had increased to £126.15 per tonne by 2025. Despite increases in the rate, revenue from the tax has been declining since 2013 and it now raises half as much in real terms as it did at its peak. Some of this gap may be explained by increased incineration of waste, but the number of recorded fly-tipping incidents also rose by 31% between 2018/2019 and 2024/2025, reaching an all-time high of 1.26 million incidents in England.

For those not familiar with the term, fly-tipping is the British term for illegal dumping.

Now let’s check out two more charts.

Figure 12 shows landfill tax rates, which have increased dramatically.

At the same time, however, revenues from this tax have plummeted.

I’ll close by admitting that tobacco taxes and landfill taxes are not very important. At least not from a macroeconomic perspective.

But keep in mind that the purpose of today’s column is to show how changes in tax policy lead to behavioral changes.

And when we apply this lesson to taxes on productive behaviors (work, saving, investment, and entrepreneurship), big macroeconomic consequences are possible.

Indeed, I’ve written about many examples of this happening in the United Kingdom (see here, here, here, here, here, here, and here).

Something to remember as the current U.K. government considers some very foolish tax increases (and many American politicians want that same approach).

P.S. Even Paul Krugman agrees that there is a Laffer Curve.