ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Phillips Curve is representation of the relationship between tax rates and tax revenue collected by governments.

Detailed explanation-2: -The Laffer Curve is based on a theory by supply-side economist Arthur Laffer. Created in 1974, it visually shows the relationship between tax rates and the amount of tax revenue collected by governments. The curve is often used to illustrate the argument that cutting tax rates can result in increased total tax revenue.

Detailed explanation-3: -In economics, the Laffer Curve is a graphic representation of the relationship between rates of taxation and the resulting levels of government revenue. The theory tries to arrive at an optimal tax rate beyond which tax revenues for an economy tend to fall.

Detailed explanation-4: -As the government increases the tax rate, the revenue also increases until T*. Beyond point T*, if the tax rate is increased, revenue starts to fall. In short, attempts to tax above a certain level are counterproductive and actually result in less total tax revenue.

Detailed explanation-5: -The Laffer curve is inverted U-shape. At the top of the laffer curve is the optimal tax rate for generating maximum revenue. When compared to lower tax rates the incentive to work and invest reduces as the income tax rates keep increasing beyond the optimal point.