What is the optimal tax rate Laffer Curve?

The Government tax revenue will be maximum at optimal tax rate represented in the Laffer Curve. If the tax rate reaches 100%, then it will be counterproductive, the Government will not gain maximum revenue at this percentage. You can read about the Taxation System in India – Types, GST, VAT, Objectives, Limitation, Laffer Curve in the given link.

The curve which analyses the impact of tax rates from 0% to 100% is known as Laffer Curve. The tax revenue will be zero at 0% of the laffer curve, as the percentage increases, the tax revenue also increases, but it will not be maximum at 100%, but at the optimal rate which is located at the top of the laffer curve, which looks like an “inverted U”.

Further readings:

  1. Global Minimum Corporate Tax – Minimum tax rate proposed by the G7
  2. Base Erosion and Profit Sharing

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