Laffer curve

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In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue. The theory reasons that because no tax revenue is raised at the extreme tax rates of 0% and 100%, there must be a tax rate between 0% and 100% that maximizes government tax revenue. The shape of the curve is a function of taxable income elasticity—i.e., taxable income changes in response to changes in the rate of taxation. As popularized by the American supply-side economist Arthur Laffer, the curve is typically represented as a graph that starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. However, the shape of the curve is uncertain and disputed among economists. One implication of the Laffer curve is that increasing tax rates beyond a certain point is counter-productive for raising further tax revenue. Particularly in the...

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