How does the Laffer Curve apply to fiscal policy?

How does the Laffer Curve apply to fiscal policy?

The Laffer Curve applies to fiscal policy by illustrating the relationship between tax rates and government revenue. It suggests that there is an optimal tax rate that maximizes government revenue, beyond which further increases in tax rates will lead to a decrease in revenue. This is because excessively high tax rates can discourage work, investment, and economic activity, resulting in a decrease in taxable income. Therefore, the Laffer Curve implies that reducing tax rates can potentially stimulate economic growth and increase government revenue.