Can countries lower taxes and raise revenues?
The Laffer curve exists in principle, but the sweet spot is hard to find
RARELY has a dinner-table scribbling created such a legacy. In 1974 Arthur Laffer, an economist, sketched a simple diagram on the back of a napkin to illustrate a truism of tax policy. Set income-tax rates to zero and governments will not collect any revenue. Set them to 100%, and they will also collect nothing because people will have little incentive to work. Somewhere in between lies a sweet spot where government revenues are maximised. From this simple proof, it follows that when tax rates are very high, it might be possible both to lower tax rates and raise revenues. Tax cuts might thus pay for themselves, and more.
Discover more
Which shares have done best from the Trump trade?
Three sectors stand out
Where is it actually cheaper to drive an electric car?
And is it always greener? Our ranking shows how costs and emissions vary
Most Ukrainians now want an end to the war
Polls show that 52% want negotiations. Some say they are willing to give up land to Russia
Which countries have the most-educated politicians?
American lawmakers have lofty credentials, but not necessarily more skills
Five charts show how Trump won the election
Where did he pick up support compared with 2020?
Which way will swing voters lean in America’s election?
Our build-a-voter model shows where Kamala Harris and Donald Trump look particularly vulnerable