What happens if a government reduces a high tax rate
A)Reducing a high tax rate is less likely to increase tax revenue than reducing a low tax rate.
B)Reducing a high tax rate is more likely to increase tax revenue than reducing a low tax rate.
C)Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate.
D)Reducing a tax rate can never increase tax revenue.

Question

Quizplus · Accepted Answer

When a high tax rate is reduced, individuals and businesses have more incentive to work, invest and spend, which can stimulate economic growth and generate more tax revenue in the long run. This is known as the Laffer curve, which suggests that reducing tax rates can lead to greater economic activity and ultimately higher tax revenues. However, this may not always be the case and depends on several factors such as the elasticity of demand, tax base, and other economic variables.

What Happens If a Government Reduces a High Tax Rate