Tax

===Laffer curve===
{{Main|Laffer curve}}

In [[economics]], the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity (that [[taxable income]] will change in response to changes in the rate of taxation). The curve is constructed by [[thought experiment]]. First, the amount of tax revenue raised at the extreme tax rates of 0% and 100% is considered. It is clear that a 0% tax rate raises no revenue, but the Laffer curve hypothesis is that a 100% tax rate will also generate no revenue because at such a rate there is no longer any incentive for a rational taxpayer to earn any income, thus the revenue raised will be 100% of nothing. If both a 0% rate and 100% rate of taxation generate no revenue, it follows from the [[extreme value theorem]] that there must exist at least one rate in between where tax revenue would be a maximum. The Laffer curve is typically represented as a graph that starts at 0% tax, zero revenue, rises to a maximum rate of revenue raised at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate.

One potential result of the Laffer curve is that increasing tax rates beyond a certain point will become counterproductive for raising further tax revenue. A hypothetical Laffer curve for any given economy can only be estimated and such estimates are sometimes controversial. [[The New Palgrave Dictionary of Economics]] reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%.<ref>{{cite book |title=Laffer curve |first=Don |last=Fullerton |series=The New Palgrave Dictionary of Economics, Second Edition |publisher=Palgrave Macmillan |year=2008 |quote=The mid-range for this elasticity is around 0.4, with a revenue peak around 70 percent. |url=http://www.dictionaryofeconomics.com/article?id=pde2008_L000015 |access-date=5 July 2011}}</ref>