The Laffer Curve

The Laffer Curve relates increasing tax rates to rising, then falling, tax revenues. Its existence and values are crucial to a measure of the limits on the ability for particular countries to raise taxes - or even survive and stay solvent. The Laffer Curve can be best described as an inverted 'U' drawn on a chart, where the 'y' axis is the total tax revenue, and the 'x' axis is the average tax rate. Conceptually then, tax revenue rises to a peak as the average tax rate rises, and then falls as the average tax rate continues to increase.