The Laffer curve reflects the view that when
A) tax rates are too low, raising them creates a greater incentive for suppliers to increase production.
B) tax rates are too high, lowering them not only creates greater incentive for suppliers to increase production, but also ends up generating higher tax revenues .
C) tax revenue is too low, the only way to increase it is through higher tax rates.
D) tax rates are too high, lowering them also reduces tax revenue.

Question

The Laffer curve reflects the view that when
A) tax rates are too low, raising them creates a greater incentive for suppliers to increase production.
B) tax rates are too high, lowering them not  only creates greater incentive for suppliers to increase production, but also ends up generating higher tax revenues .
C) tax revenue is too low, the only way to increase it is through higher tax rates.
D) tax rates are too high, lowering them also reduces tax revenue.

Quizplus · Accepted Answer

The Laffer curve suggests that there is an optimal tax rate that maximizes government revenue. At tax rates that are too high, lowering them can actually increase revenue by stimulating economic growth and increasing taxpayer compliance. Therefore, option B is the best choice as it reflects the view that lowering tax rates from a high level can generate higher tax revenues.

The Laffer Curve Reflects the View That When