Laffer Curve

The Laffer Curve illustrates the relationship between tax rates and tax revenue. It suggests that there is an optimal tax rate that maximizes government revenue. If tax rates are too low, revenue is insufficient; if they are too high, they discourage work and investment, leading to lower revenue. The curve demonstrates that increasing tax rates beyond a certain point can actually reduce total tax revenue due to decreased economic activity and compliance. Essentially, it highlights the importance of finding a balanced tax rate that fosters growth while ensuring adequate revenue.