The idea that reductions in tax rates will increase tax revenue is illustrated by the
A) Laffer Curve.
B) short-run Phillips Curve.
C) long-run Phillips Curve.
D) aggregate supply curve.

Question

Quizplus · Accepted Answer

The Laffer Curve suggests that as tax rates increase beyond a certain point, tax revenue will eventually decrease because high tax rates discourage economic activity and reduce the incentive to work, save, and invest. On the other hand, if tax rates are reduced, it may stimulate economic activity and result in increased tax revenue despite the lower tax rates. This idea has been used to support the argument for certain tax cuts, especially in the context of supply-side economics.

The Idea That Reductions in Tax Rates Will Increase Tax