Macro Foundations · intro
What moves on the Laffer Curve diagram
Past the revenue-maximising rate, the shrinking tax base outweighs the higher rate, so total revenue falls even as the statutory rate rises.
Revenue first rises with the tax rate: a bigger slice of a stable pie.
The government pushes the rate far beyond the hump.
Now each extra point of tax shrinks the base, through less work, less investment, and more avoidance, faster than it taxes it.
Revenue slides DOWN the far side of the hill: a higher rate collecting less money.
Examiners ask this as: tax hike, past the peak, revenue falls, 70 percent tax, overtaxing.
Other scenarios on Laffer Curve