The Laffer curve relates
A)the tax rate to tax revenue raised by the tax.
B)the tax rate to the deadweight loss of the tax.
C)the price elasticity of supply to the deadweight loss of the tax.
D)government welfare payments to the birth rate.

Question

Quizplus · Accepted Answer

The Laffer curve shows the relationship between the tax rate and the tax revenue raised by that tax. The curve illustrates that as tax rates increase, tax revenue initially increases, but then eventually reaches a point where further increases in the tax rate actually lead to a decrease in tax revenue. This is because higher tax rates can discourage economic activity and result in tax avoidance or evasion.

The Laffer Curve Relates