Economics Laffer Curve Questions
The Laffer Curve illustrates the concept of tax elasticity by showing the relationship between tax rates and tax revenue. It suggests that as tax rates increase from zero, tax revenue initially increases due to higher tax collections. However, at a certain point, further increases in tax rates lead to a decrease in tax revenue as taxpayers may choose to work less, evade taxes, or engage in other forms of tax avoidance. This demonstrates the concept of tax elasticity, as it shows how changes in tax rates can impact the responsiveness of taxpayers and ultimately affect tax revenue.