Laffer curve

Syllable breakdown

Dictionary meaning

a theoretical relationship between tax rates and total tax revenue, positing that both a zero tax rate and a 100% tax rate produce zero revenue, with a revenue-maximising rate existing somewhere between these extremes; the curve implies that above the revenue-maximising point, raising tax rates reduces revenue because high taxes discourage work, investment, and economic activity; attributed to economist Arthur Laffer (though the underlying logic was recognised earlier), the curve became the intellectual foundation for supply-side economics and the tax cuts of the Reagan and Thatcher administrations; empirical estimates of the revenue-maximising rate vary widely and are contested, and critics argue that the curve has been used to justify tax cuts whose fiscal consequences exceeded theoretical predictions