World-renowned economist proposes tax reforms for Thailand’s growth

Dr Arthur B. Laffer has outlined his views on the challenges facing Thailand’s economy and proposed structural reforms to strengthen competitiveness, attract investment and support sustainable long-term growth.

The world-renowned economist, an expert in tax policy and economic reform, gave an exclusive interview marking Thailand’s hosting of the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group from Monday (October 12, 2026) to Sunday (October 18).

A pioneer of supply-side economics, Laffer created the “Laffer Curve”, which explains the relationship between tax rates and government revenue.

Addressing changes in the global economy, particularly the United States’ increasing use of tariffs, industrial subsidies and economic security policies that could affect Thailand’s trade, supply chains and investment, Laffer argued that countries should not spend most of their time reacting to policy changes elsewhere.

Doing so would cause countries to lose sight of their own development priorities.

The best long-term policies, in Laffer’s view, are those that sustainably encourage saving, investment, production and employment.

These comprise what the economist called the “five pillars of prosperity”: appropriate tax rates, control of government spending, financial discipline, regulations that impose no unnecessary burden, and free trade.

Thailand did not need to retaliate against other countries with tax measures or trade barriers, Laffer argued.

Restricting trade would not reduce the damage, and would instead raise costs for consumers and businesses while reducing the benefits of competition and specialisation.

Weak growth reflects policy problems more than external factors

Thailand’s economy has grown by an average of only about 2% a year over the past five years, lagging faster-growing neighbouring members of the Association of Southeast Asian Nations (ASEAN).

The economist attributed this partly to a tax structure and economic environment that were not attracting sufficient investment, particularly as Thailand competed with Vietnam, Laos and Cambodia for international capital.

Laffer viewed the structural challenges facing Thailand, including an ageing society, high household debt and slow labour productivity growth, more as “outcomes” of weak economic growth than as its causes.

When people see few economic opportunities ahead, they tend to have fewer children.

Limited investment makes gains in labour productivity difficult, while insufficient opportunities to earn income turn debt into a burden rather than a tool for building wealth.

“What matters most is giving investors confidence that the country is firmly and consistently committed to policies that support growth over the long term.”

Ad hoc incentives are not what investors need

On attracting investment, Laffer argued that competition today did not depend solely on incentives for individual projects.

The principles of growth-oriented economics showed that lower tax rates on production activities, alongside appropriate incentives to work and invest, would increase output, employment and productivity throughout the economy.

A sound tax system should raise the revenue the government needs while causing as little damage to the economy as possible.

Such a system should therefore have a broad tax base, moderate rates and fewer exemptions, deductions or special privileges that could distort economic decisions or encourage tax avoidance.

Government spending should focus on projects that the private sector cannot carry out efficiently on its own, with priority given to the economic returns actually achieved.

For Laffer, the “scale” and “composition” of tax and spending policies were equally important.

Policies that strengthened economic incentives would support employment, investment and production, while poorly designed measures could have the opposite effect.

Subsidies and tax privileges amount to market intervention

Support for strategic industries, such as electric vehicles, electronics and other targeted sectors, through subsidies and tax incentives amounted to government intervention in markets and conflicted with free-market principles, in Laffer’s view.

Such measures were often justified as correcting “market failures”, yet in many cases governments ended up deciding who should benefit from public resources.

“The government should not pick winners and losers in the market. Its main role is to establish sound rules and let businesses and individuals decide how to allocate resources to the most promising opportunities.”

Restoring fiscal health through structural reform

Thailand faced major fiscal challenges from an ageing society and lacked sufficient fiscal space to support it, Laffer said.

The economist warned that broad demand-side stimulus might not be an appropriate response, as already high household debt constrained purchasing power.

Laffer’s fiscal proposals included a multi-year, medium-term framework backed by law, with clear budget deficit targets for Thailand.

This would signal a commitment to fiscal discipline, maintain the country’s financial credibility and help reduce government borrowing costs.

On government revenue, Laffer proposed gradually raising value-added tax (VAT) from the temporary rate of 7% to the statutory rate of 10%.

The recommendations also included broadening the income tax base by reviewing unnecessary tax incentives and deductions, and modernising tax collection to prevent revenue leakage and bring more informal economic activity into the tax system.

The spending proposals called for phasing out energy and agricultural price subsidies that distorted markets and redirecting the funds towards infrastructure offering high economic returns.

The investment would strengthen the country’s long-term potential and attract foreign direct investment.

Further recommendations included reforming the public-sector retirement system and shifting the healthcare system towards greater emphasis on disease prevention and preventive care, to reduce future budget pressures arising from demographic change.

Improving the efficiency of tax collection

The economist recommended that Thailand move towards a simple, comprehensive tax system capable of generating sufficient revenue without discouraging work, saving, investment or production.

Personal and corporate income tax should be levied at competitive rates, with a broad tax base and fewer exemptions or special privileges.

VAT, in Laffer’s assessment, could generate government revenue while affecting investment less than many other taxes.

If additional revenue was needed, the government should consider raising the rate towards the statutory 10%, alongside targeted support for low-income groups rather than broad tax exemptions.

Policymakers should consider how consumers respond to excise duties, the economist stressed.

Higher taxes would not always generate more government revenue if consumers responded by avoiding tax, switching products or turning to illegal markets.

Citing Thailand’s two-tier cigarette tax system and the debate over a possible move to a single rate, Laffer recommended adopting a single rate to simplify the system and reduce incentives to design products that qualified for the lower tax band.

Taxation based on quantity, or specific taxation, could help the government forecast tax revenue more accurately and reduce incentives for consumers to switch to cheaper cigarettes simply to avoid tax.

If different types of products posed significantly different health risks, he argued, tax rates should reflect those differences to encourage a shift towards lower-risk alternatives.

Laffer stressed that this approach would not necessarily reduce tax revenue.

If designed appropriately, it could broaden the tax base and support growth in government revenue.