Answer: The Laffer curve is graphed with tax revenue on the y-axis and tax rates on the x-axis. The Laffer curve captures the concept that raising the tax rate eventually leads to lower tax revenues being collected. At low tax rates, an increase in the tax rate raises the total tax revenue collected. But if government raises the tax rate high enough, an increase in the tax rate leads to lowers the total tax revenue collected. This effect takes place because when the tax rate is high enough, the disincentive effect of the tax becomes so large that enough people give up working and saving so that the total tax revenue declines. While most economists believe the United States is on the upward sloping part of its Laffer curve, so that an increase in the tax rate raises total tax revenue. The United Kingdom is believed to be also on the upward sloping part of its Laffer curve. But France might be at the peak of its curve or even on the downward sloping part, where an increase in the tax rate lowers total tax revenue.
http://www.investopedia.com/terms/l/laffercurve.asp What is the 'Laffer Curve'
The Laffer curve, invented by Arthur Laffer, shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve:
The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.
Governments would like to be at point T*, because it is the point at which the government collects maximum amount of tax revenue while people continue to work hard.
Answer:
ReplyDeleteThe Laffer curve is graphed with tax revenue on the y-axis and tax rates on the x-axis. The Laffer curve captures the concept that raising the tax rate eventually leads to lower tax revenues being collected. At low tax rates, an increase in the tax rate raises the total tax revenue collected. But if government raises the tax rate high enough, an increase in the tax rate leads to lowers the total tax revenue collected. This effect takes place because when the tax rate is high enough, the disincentive effect of the tax becomes so large that enough people give up working and saving so that the total tax revenue declines. While most economists believe the United States is on the upward sloping part of its Laffer curve, so that an increase in the tax rate raises total tax revenue. The United Kingdom is believed to be also on the upward sloping part of its Laffer curve. But France might be at the peak of its curve or even on the downward sloping part, where an increase in the tax rate lowers total tax revenue.
ReplyDeletehttp://www.investopedia.com/terms/l/laffercurve.asp
What is the 'Laffer Curve'
The Laffer curve, invented by Arthur Laffer, shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve:
The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.
BREAKING DOWN 'Laffer Curve'
ReplyDeleteGovernments would like to be at point T*, because it is the point at which the government collects maximum amount of tax revenue while people continue to work hard.