- A trade off between tax rate and government revenue.
- Used to support the supply side economic.
- As tax increase from 0 to some max level then decline
*Criticism of Laffer Curve
- Research suggest that impact of tax rate on incentive to work, save and invest are small.
- Tax cut also create demand, which can fill inflation -> demand exceeds supply.
- Where the economy is actually located on the curve is difficult to determine.
Reaganomics:
Lower marginal tax rate -> deficit
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