Which of the following best describes the policy implications of a Laffer curve?
A)Policymakers should eliminate tax deductions and maximize revenue at any given tax rate.
B)Policymakers should eliminate tax loopholes and maximize revenue at any given tax rate.
C)Policymakers should carefully consider whether a given increase in tax rates would increase or decrease tax revenues.
D)Policymakers should avoid imposing taxes on income as they decrease the work incentive.
E)Policymakers should set the tax rate as low as possible to maximize tax revenue.

Question

Quizplus · Accepted Answer

The Laffer curve suggests that there is an optimal tax rate that maximizes revenue. Policymakers should carefully consider whether a given increase in tax rates would increase or decrease tax revenues. If the tax rate is already beyond the optimal point on the curve, then raising taxes would actually decrease revenues. Therefore, policymakers must find the optimal point on the curve to maximize revenues. The other choices are either too extreme or not directly related to the Laffer curve.

Which of the Following Best Describes the Policy Implications of a Laffer