Laffer Curve

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The Laffer Curve is a graphical representation that illustrates the relationship between tax rates and tax revenue. It was popularized by economist Arthur Laffer in the 1970s and is used to illustrate the concept that there is an optimal tax rate that maximizes government revenue. Here are the key points about the Laffer Curve:

1. Tax Revenue and Tax Rates: The Laffer Curve suggests that at very low tax rates (0%), the government collects no revenue, and at very high tax rates (100%), people have no incentive to work, invest, or engage in economic activity, resulting in zero revenue. The curve demonstrates that there is an inverted-U relationship between tax rates and tax revenue.

2. Optimal Tax Rate: The Laffer Curve implies that there exists an optimal tax rate at which the government generates the maximum possible revenue. This rate strikes a balance between taxing individuals and businesses enough to generate revenue while not discouraging economic activity.

3. Tax Elasticity: The shape of the Laffer Curve depends on the elasticity of taxable income. If taxable income is highly responsive to changes in tax rates (elastic), the curve will be flatter, ___________ _____ _______ __________ ___________ ___ ____ _____ _____________.
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Degree : MASTER DEGREE PROGRAMMES
Course Name : Master of Arts in Economics
Course Code : MEC
Subject Name : Public Economics
Subject Code : MEC 6
Year : 2023 2024