2.6.2. Fiscal Policy - The Laffer Curve (Edexcel A-Level Economics Teaching PowerPoint)

This Edexcel teaching powerpoint covers the Laffer Curve.

The Laffer Curve - the iconic upside-down "U" curve - demonstrates the possible relationship between tax rates and government revenue. It was proposed by economist Arthur Laffer in the 1970s, and the basic idea is that if tax rates are too high, they can discourage people from working and investing, which leads to less economic activity and lower tax revenues. Conversely, if tax rates are too low, they can result in lower government revenue because there is not enough money coming in to support government spending. The sweet spot on the Laffer Curve is the tax rate that maximizes government revenue - not too high and not too low. The Laffer Curve has been used as an argument for lowering tax rates in order to stimulate economic growth and increase government revenue. However, there is debate about the shape of the Laffer Curve and the exact point at which tax rates are optimal.