Question

What is the Laffer curve? What point is Art Laffer making? what do you think about it?

Answer 1

Ans. Laffer curve is a type of curve which shows that as Tax rate rises , Tax Revenue would also increase. The tax revenues will only increase upto a certain point and after which, tax revenues would begin to decline. The point that Art Laffer is making is that people tend to change their behavior accordingly with the change in income tax rates. He suggests that increase in tax rate beyond certain point can lead to an decrease in the Total Tax Revenue. In my opinion , it's a good observation because if tax rate is increased minimally , then people might work hard and would lead to an increase in tax Revenue but if tax rates rise beyond certain point , then people would be demotivated to work and hence the Total Tax Revenue might fall.

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