Why is the Laffer Curve shaped the way it is?

The Laffer curve is inverted U-shape. At the top of the laffer curve is the optimal tax rate for generating maximum revenue. When compared to lower tax rates the incentive to work and invest reduces as the income tax rates keep increasing beyond the optimal point. You can read about the Taxation System in India – Types, GST, VAT, Objectives, Limitation, Laffer Curve in the given link.

When the tax rate is from zero percentage to the optimal point, the tax revenue keeps increasing. 

Further readings:

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

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