Laffer Curve

The Laffer Curve is a theory showing the relationship between tax rates and the amount of tax revenue collected by governments. It is based on the economic notion that people will alter their behavior notwithstanding the incentives created by income tax rates. The Laffer Curve was used as a basis for tax cuts in the 1980s with obvious success but criticized on the basis of practical and economic grounds that increasing government revenue might not always be optimal.