5. Income and Wealth: Poverty and Inequality - The Laffer Curve

Question 1

What does the Laffer curve show?

Answer 1

It is used to show whether increasing taxes will increase tax revenues - it says taxes rev. will increase will taxes up to point

Question 2

What happens if the gov. increase taxes beyond the efficient tax rate?

Answer 2

The tax rev. collected will reduce for 3 reasons;1. Disincentive to work hard & be entrepreneurial - ppl start to value leisure more2. Emigration to other areas - ppl move to countries with lower tax rates (best ppl move away)3. Tax evasion and tax avoidance

Question 3

What does the Laffer curve look like? What is on each axis?

Answer 3

It is a n shaped curve with Tax Rev. on the Y axis and the Tax Rate on the X axis