What is the Lafffer curve?
Lafer curve is an economic model showing the relationship of tax rates to tax revenues, as the economist Arthur Lafer assumed. The model is most often displayed in the perfect shape of the bell curve, but the real reality could vary. The theory was first presented in 1974 and the legend states that Lafer first drew a curve on a cocktail napkin for a couple Washington Power Brokers.
The basic assumption of the Lafer curve states that if the tax rate is zero, the income is zero. If the tax rate is 100 percent, there is no tax revenue, simply because people do not have the motivation to work in an otherwise free society. The theory also assumes that there is a maximum point at which the tax rates will bring the maximum amount of income. Anything lower or higher than this rate will reduce income.
point at which the income is maximized on the Lafer curve is known as "T." As a practical matter, it is difficult for governments to find an accurate rate for T. This is not an ease because the optimal Dan rateIt is difficult to find income in itself, but also because there are other taxes such as sales and real estate taxes. National moods towards taxation may further change from time to time, for example during the war, when nationalistic feelings may be higher.
When considering tax policy, countries may have some policies claiming that the national tax rate as in the value of T, and others who claim to be on one or the other. Whether it is like this or not, it is often the core of the battle. In most cases, the only way to learn is simply implementing value and observing income. If the results are not created, adjustments may be required.
Laffer curve is often poorly characterized by those who are taxing or fighting for lower taxes because it states that reducing tax rates will increase income. The curve shows that it can be, but only if the tax rates are already soSoké, suppress revenue growth. If the point is on the curve to the left of the value T, then the reduction of rates will even reduce the tax revenue.
The accumulation of wealth is the mechanism of driving behind the curve of the Lafer curve. In most cases where people can freely choose whether they will work, the Lafer curve can be a conceivable model. In countries where people are forced to work by a threat or force, the curve cannot work. People in these countries are not motivated to work for personal wealth, even if they have a scholarship from the government. Rather, they are motivated to work for personal security.