ILLINOIS STATE UNIVERSITY
THE INFLECTION POINT OF LAFFER CURVE
The relationship of the tax revenues to the tax rate is often referred to as the Laffer Curve. In this note we investigate the nature of this relationship, and point out that the standard approach to the curve ignores the possibility that its shape may reveal information about the economy, and the crucial portion of such information is conveyed in the inflection point of the curve. We point out that one should expect the Laffer Curve to have an inflection point. Then we discuss all possible choices of effective tax rates, and their effects on tax revenues and national income.