What is the trade off in the Laffer curve?

The trade off in the Laffer Curve is between tax revenue and tax rates. The laffer curve is inverted U shape. The tax revenue keeps increasing as the tax rate increases until it reaches the optimal point in the Laffer Curve. You can read about the Taxation System in India – Types, GST, VAT, Objectives, Limitation, Laffer Curve in the given link.

After the Optimal point, if the tax rates keep increasing, then the tax revenue starts falling. It shows that at maximum tax rates, the tax revenue is not the maximum.

Further readings:

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

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