According to the Laffer curve, as tax rates increase, tax revenues
A) initially increase and then decrease.
B) decrease continuously.
C) initially decrease and then increase.
D) rise continuously.

Question

Quizplus · Accepted Answer

The Laffer curve is a theoretical model that suggests that at lower tax rates, tax revenue is low because there is little incentive for people to work and earn income. As tax rates increase, tax revenue initially increases as people are still motivated to earn income, but then starts to decrease as the high tax rates discourage work and reduce economic activity. Therefore, option A is correct.

According to the Laffer Curve, as Tax Rates Increase, Tax