Answer to Question #242019 in Macroeconomics for Mnb

Question

The Laffer curve shows that higher personal income tax rates will not necessarily produce more tax revenue.'' Critically discuss this statement using diagram.

Answer 1

Laffer Curve reflects on the idea that individuals change their characters based on incentives brought through the rate of income tax. When the impact end up larger, this implies that in other tax rate, further rate increase may contribute to reduction in the tax revenue.