Asked by Lizbeilyn Ozoria on Jul 15, 2024
Verified
The Laffer curve suggests that if tax rates get too ____,the government's tax revenues will ____.
A) high;fall
B) high;rise
C) low;fall
D) low;rise
Laffer Curve
A theory that suggests there exists an optimal tax rate which maximizes government revenue without deterring economic growth, demonstrating the trade-off between tax rates and taxable income.
Tax Rates
Tax rates are the percentages at which an individual or corporation is taxed, varying by income level, economic activity, or type of good.
Tax Revenues
The financial earnings governments receive through taxing.
- Analyze the effects of fiscal policies on economic conduct and public finances, with a focus on the Laffer Curve theory.
Verified Answer
AR
Alicia ReinboldtJul 21, 2024
Final Answer :
A
Explanation :
The Laffer curve shows that as tax rates increase, there comes a point where tax revenues will start to decrease because the higher taxes act as a disincentive for people to work, invest, and consume. Eventually, if taxes get too high, people will no longer be willing to work and invest because they will receive too little reward for their efforts, and tax revenues will begin to decline. Therefore, if tax rates get too high, the government's tax revenues will fall.
Learning Objectives
- Analyze the effects of fiscal policies on economic conduct and public finances, with a focus on the Laffer Curve theory.