The Laffer curve is
A) never referred to in modern day discussions of public finance.
B) a curve that describes the relationship between tax rates and tax revenues.
C) used to describe the relationship between consumption and hours worked.
D) a curve that refers to the endowment of time.

Question

Quizplus · Accepted Answer

The Laffer curve is a curve that describes the relationship between tax rates and tax revenues. As tax rates increase, at some point, people may choose to work less or engage in tax avoidance, leading to a decrease in tax revenues. The curve shows that there is an optimal tax rate that maximizes revenue, and that tax rates above or below this point will lead to lower revenue. The Laffer curve is still discussed in modern day public finance debates.

The Laffer Curve Is