According to the Laffer curve,
A) an increase in tax rates will always increase tax revenues.
B) a decrease in tax rates will always decrease tax revenues.
C) a decrease in tax rates will always increases tax revenues.
D) an increase in tax rates will have an inconsistent effect on tax revenues.

Question

Quizplus · Accepted Answer

The Laffer curve suggests that there is an optimal tax rate that will generate the maximum amount of tax revenue for a government. If tax rates are too low, tax revenue will be low because there will not be enough money collected. However, if tax rates are too high, people will be discouraged from working and investing, and tax revenue will also be low. Therefore, an increase in tax rates may sometimes increase tax revenue, but it may also have the opposite effect and lead to decreased revenue. Similarly, a decrease in tax rates may sometimes increase revenue, but it may also lead to decreased revenue. The Laffer curve suggests that there is a point at which tax rates are optimal for maximizing government revenue, and going above or below that point will lead to lower revenue.

According to the Laffer Curve