economics medium Fill in the Blank

The ___ Curve illustrates the theoretical relationship between tax rates and total tax revenue, suggesting that beyond a certain optimal point, excessively high tax rates will actually reduce total revenue by discouraging work and encouraging evasion.

  1. Skewflation
  2. Laffer
  3. Okun's
  4. India Debt Resolution Company Ltd (IDRCL)

Answer: Laffer

Arthur Laffer's famous curve starts at zero revenue (0% tax rate), rises to a peak (the revenue-maximizing rate), and then slopes back down to zero (at a 100% tax rate, no one would work in the formal economy). It is a foundational concept in supply-side economics, arguing that sometimes cutting tax rates can paradoxically increase total government revenue by stimulating massive economic activity.

Topic Public Finance - Taxation
Exam Relevance UPSC Prelims, SSC CGL
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