- Depicts a theoretical relationship between tax rate and government revenue
- As tax rates increase from zero, government revenues increases from zero to a maximum level, and then decline
Criticsms of the Laffer Curve
- Research suggests that the impact of tax rates on incentives to work, save, and invest are small.
- Tax cuts also increase demand which can fuel inflation, which causes demand to exceed supply
- Where the economy is actually located on the curve is difficult to determine
In a way, the laffer curve makes sense. If the tax rate is low, the government won't make that much money. If the tax rate is too high, people will be discouraged in spending and consumption.
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