Laffer curve

Representation of the relationship between taxation and government revenue

In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue. The theory reasons that because no tax revenue is raised at the extreme tax rates of 0% and 100%, there must be a tax rate between 0% and 100% that maximizes government tax revenue. The shape of the curve is a function of taxable income elasticity—i.e., taxable income changes in response to changes in the rate of taxation.

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