The Laffer Curve indicates that
A) when tax rates are high, a rate reduction may lead to an increase in tax revenue.
B) when tax rates are low, an increase in tax rates will generally lead to a reduction in tax revenues.
C) an increase in tax rates will always lead to an increase in tax revenues.
D) the deadweight losses resulting from taxation are small at the tax rate that maximizes the revenues derived by the government.

Question

Quizplus · Accepted Answer

The Laffer Curve suggests that there is an optimal tax rate that maximizes revenue. When tax rates are too high, reducing them can potentially increase revenue by encouraging economic activity.

The Laffer Curve Indicates That