Laffer curve

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A curve showing the relation between tax rates and revenue raised, named after its originator. If any activity is taxed, revenue starts from zero with a zero tax rate, and rises as the rate is increased. The tax tends to discourage the activity, however, so that at some point the total revenue raised turns down. This tendency is accentuated by the effect of higher tax rates in promoting tax evasion. These properties of the Laffer curve have been used to justify tax cuts as a means of increasing tax revenue.

Subjects: Economics.

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