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The Laffer curve illustrates that increasing tax rates may decrease government revenue as people stop working, and increasing tax rates towards 100% causes government revenue to decline to zero as everyone stops working. Government revenue is not always increased by increasing taxes. This curve is named after [[Arthur Laffer]], an influential economist behind the tax cuts of President [[Ronald Reagan]].
The '''Laffer curve''' illustrates that increasing [[tax rates]] may decrease government revenue as people stop working, and increasing tax rates towards 100% causes government revenue to decline to zero as everyone stops working. Government revenue is not always increased by increasing taxes. This curve is named after [[Arthur Laffer]], an influential economist behind the tax cuts of President [[Ronald Reagan]].
If the tax rate is higher than t* in the Laffer curve below, then increasing taxes causes government revenue to decrease. Few dispute the underlying principle of the Laffer curve, but the debate centers on where to set the tax rate to obtain the maximum revenue. The concensus among economist is, however, that t* is above the current tax rates. <ref>Blanchard, O. ''Macroeconomics, 4th edition''. 2003, Upper Saddle River, New Jersey: Pearson Prentice Hall (p. 430-431, 500)</ref> <ref>Begg, D. Fischer, S. & Dornbusch, R. ''Economics, 8th Edition''. 2005, Berkshire, United Kingdom: McGraw-Hill (p. 289-290)</ref>
If the tax rate is higher than t* in the Laffer curve below, then increasing taxes causes government revenue to decrease. Few dispute the underlying principle of the Laffer curve, but the debate centers on where to set the tax rate to obtain the maximum revenue. The concensus among economist is, however, that t* is above the current tax rates. <ref>Blanchard, O. ''Macroeconomics, 4th edition''. 2003, Upper Saddle River, New Jersey: Pearson Prentice Hall (p. 430-431, 500)</ref> <ref>Begg, D. Fischer, S. & Dornbusch, R. ''Economics, 8th Edition''. 2005, Berkshire, United Kingdom: McGraw-Hill (p. 289-290)</ref>