According to the Laffer curve, we know with certainty that an increase in the tax rate will
A) cause tax revenue to increase.
B) cause tax revenue to decrease.
C) have no effect on tax revenue.
D) cause tax revenue to increase, decrease, or remain unchanged.

Question

Quizplus · Accepted Answer

The Laffer curve illustrates that there is a point beyond which increasing tax rates will have a negative effect on tax revenue, as it will discourage work, investment, and other economic activity. Therefore, although a tax rate increase may initially lead to higher revenue, eventually it will reach a point where it causes revenue to decline. Thus, an increase in the tax rate can lead to tax revenue increasing, decreasing, or remaining unchanged depending on the current tax rate and the elasticity of the taxed activity.

According to the Laffer Curve, We Know with Certainty That