Laffer curve

Question 1

Laffer curve

Answer 1

The Laffer curve, invented by Arthur Laffer, shows the relationship between tax rates and tax revenue collected by governments.

Question 2

Laffer curve suggests

Answer 2

The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.