Which statement is TRUE?

Question

Quizplus · Accepted Answer

The Laffer curve shows the relationship between tax rates and tax revenue. At some point, increasing tax rates will lead to a decrease in revenue, as people have less incentive to work and may seek to avoid taxes. The exact position of the economy on the Laffer curve is uncertain, so the effects of lowering tax rates cannot be predicted with certainty. A) is false, as a 100% tax rate would completely discourage work and result in no tax revenue. C) is also false, as low marginal tax rates can actually increase work effort by incentivizing people to pursue more income. D) is also false, as high marginal tax rates can lead to a decrease in work effort as people may feel that the extra income is not worth the additional taxes.

Which Statement Is TRUE