Laffer CurveIt depicts a theoretical relationship between tax rate and government revenue. As tax rates increase from zero, government revenues increase from zero to some maximum level and then decline.
Criticisms of the Laffer Curve
1. Research suggests that the impact of tax
rates on incentives to work, save and invest are small.
2. Tax cuts also increase demand which can
fuel inflation, which causes demand to exceed supply.
3. Where the economy is actually located on
the curve is difficult to determine.
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