It is possible for a decrease in tax rates to increase tax revenues and decrease the size of a budget deficit.

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Quizplus · Accepted Answer

This is known as the Laffer curve, where a decrease in tax rates can stimulate economic growth and increase taxable income, leading to an overall increase in tax revenues. This increase in revenues may be enough to offset the initial decrease in tax rates and even lead to a decrease in the size of a budget deficit. However, the effectiveness of this approach depends on various factors such as the elasticity of demand for goods and services, the size of the initial tax rate, and the overall economic conditions.

It Is Possible for a Decrease in Tax Rates to Increase