Asked by Drishana Pillay on May 14, 2024
Verified
The Laffer curve shows the relationship between
A) marginal and average tax rates.
B) tax revenue and marginal tax rates.
C) tax revenue and average tax rates.
D) unemployment and inflation.
Laffer Curve
A theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation, suggesting an optimal tax rate for maximizing revenue.
Tax Revenue
The income that is collected by the government through the imposition of taxes on goods, services, and income.
Marginal Tax Rates
The rate at which the last dollar of income is taxed, indicating how much tax will be paid on an additional dollar of income.
- Delve into the relationship between tax policies, economic responses, and the fiscal outcomes for governments, featuring the Laffer Curve analysis.
Verified Answer
JB
Jacob BilgerMay 20, 2024
Final Answer :
B
Explanation :
The Laffer curve shows the relationship between tax revenue and marginal tax rates. It suggests that beyond a certain point, increasing tax rates will actually decrease tax revenue because it disincentivizes work and investment. The curve is used to argue for lower tax rates as a means of increasing revenue.
Learning Objectives
- Delve into the relationship between tax policies, economic responses, and the fiscal outcomes for governments, featuring the Laffer Curve analysis.