ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Explanation: The Laffer curve shows the relationship between tax rates and tax revenue collected by governments. The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases.

Detailed explanation-2: -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-3: -What is Laffer Curve? 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: -What is the difference between revenue and tax? Some companies receive revenue from interest, royalties, or other fees. Sales revenue is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers.

Detailed explanation-5: -Some of the criticisms of the Laffer curve are, it makes very simplistic assumptions, revenue may well be a multivalued function of tax rate which is not considered in the Laffer curve. It does not take into account tax avoidance. These are some of the criticisms of the Laffer curve.