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Laffer Curve |
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Laffer curve A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer. Laffer Curve An upside down parabola on a chart referring to a theoretical optimal tax rate that will maximize government revenues. The theory behind the Laffer curve states that there is a certain point, known as T*, at which a government collects the greatest possible amount in taxes. If taxes are lower than T*, the government collects less because taxpayers are not required to pay. If it is higher than T*, people have an incentive to work less because more of their money goes to the government and, as a result, the government collects less. Economists disagree about whether the Laffer curve is true, but even supporters agree that T* is only an approximation. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| United States economist who proposed the Laffer curve (born in 1940) United States economist who proposed the Laffer curve (born in 1940) For example, they do not emphasize that the revenue-maximizing tax rate is always larger than the "optimal" tax rate because at the peak of the Laffer curve the rate can be reduced slightly, resulting in a large reduction in the excess burden of the tax, but only a small reduction of tax revenue. |
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