- Manipulate aggregate supply by enacting policies designed to stimulate incentives to work, save, and invest
- ex: tax cuts= increase disposable income
Laffer Curve
- Theoretical relation between tax rate and govt revenue
Criticism of laffer curve
- 1- imperial evidence suggest that the impact of tax rates on incentives to work save and invest are small
- 2- tax cuts also increase demand which can fuel inflation
- 3- where the economy is actually located on the curve is difficult to determine
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