The Laffer curve
A) initially slopes upward as increasing tax rates lead to increasing tax revenue but eventually will slope downward as increasing tax rates lead to decreasing tax revenue.
B) slopes downward throughout its range since increasing tax rates will always lead to decreases in tax revenue.
C) slopes upward throughout its range since increasing tax rates will always lead to increases in tax revenue.
D) is horizontal because tax revenue is independent of the rate of interest.

Question

Quizplus · Accepted Answer

The Laffer curve initially slopes upward as increasing tax rates lead to increasing tax revenue due to the higher tax base, but eventually it will slope downward as increasing tax rates lead to decreasing tax revenue due to taxpayers' reduced incentives to work and invest.

The Laffer Curve