Laffer curve

economics

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June 30, 2026

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The Laffer curve is a diagram that illustrates the relationship between tax rates and tax revenues. It suggests that as tax rates increase from zero, government revenue also increases. However, beyond a certain point, further increases in tax rates can lead to a decrease in revenue. This happens because high tax rates can discourage people from earning or declaring taxable income.1

This economic theory was popularized by Arthur Laffer, an American economist, and influenced U.S. economic policy in the 1980s, particularly during the Reagan administration. Laffer's idea was that cutting tax rates could, in some cases, lead to higher government revenue by incentivizing economic activity. The debate often centers on where an economy sits on this curve and whether tax cuts would indeed boost revenue.23

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Arthur Laffer
Laffer drew the famous Laffer curve, which showed that, starting from a zero tax rate, increases in tax rates will increase the government’s tax revenue but that, at some point, when the rates become high enough, further increases in tax rates will decrease revenue. This occurs because higher tax…
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Laffer drew the famous Laffer curve, which showed that, starting from a zero tax rate, increases in tax rates will increase the government’s tax revenue but that, at some point, when the rates become high enough, further increases in tax rates will decrease revenue. This occurs because higher tax…
Read More

Arsène-Jules-Étienne-Juvénal Dupuit
…among other ideas, the “Laffer curve” of taxation.
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…among other ideas, the “Laffer curve” of taxation.
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Economic Recovery Tax Act of 1981
…Laffer, the originator of the Laffer curve. The Laffer curve shows the relationship between federal taxes and revenue, as plotted on a line graph. It takes the form of an inverted “U,” which shows federal revenue at zero when tax rates are zero and again at 100%. When tax rates…
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…Laffer, the originator of the Laffer curve. The Laffer curve shows the relationship between federal taxes and revenue, as plotted on a line graph. It takes the form of an inverted “U,” which shows federal revenue at zero when tax rates are zero and again at 100%. When tax rates…
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government budget
The relationship between tax rates and revenues
…debate has persisted over the “Laffer curve,” which postulates that at some level of tax the disincentive effects will be so great as to mean that an increase in tax rates actually reduces revenue. This idea has been influential in leading governments to attempt to curtail the share of public…
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…debate has persisted over the “Laffer curve,” which postulates that at some level of tax the disincentive effects will be so great as to mean that an increase in tax rates actually reduces revenue. This idea has been influential in leading governments to attempt to curtail the share of public…
Read More