According to the Laffer curve, _____.

Question

the tax rate does not affect the amount of revenue

a high tax rate will produce a higher revenue

both a high and low tax rate can produce the same revenues

a low tax rate will produce a higher revenue

Answer 1

According to the Laffer curve, both a high and low tax rate can produce the same revenues.

The Laffer curve illustrates the relationship between tax rates and tax revenue, suggesting that there is an optimal tax rate that maximizes revenue. If the tax rate is too low, revenue will be low; if it is too high, it can also decrease revenue due to decreased incentive for earning (leading to tax avoidance or decline in economic activity). Hence, revenue may not increase linearly with tax rates.