Laffer Curve


  • This curve explains correlation between tax rate and tax revenues.
  • It states that if tax rates are very high, reducing them up to a point optimizes tax revenues as it will lead to lesser evasion and better compliance.

Some Deductions from Curve:

1. If we are to the right of T*, if tax rate decreases, tax revenue will increase.

2. If we are to the left of T*, if tax rate decreases, tax revenue will decrease.