The Laffer curve illustrates the relationship between tax rates and government revenue.
Its central idea is that revenue is zero at a 0% tax rate and, under the model’s simplifying assumptions, also approaches zero at a 100% rate. Between those extremes lies a revenue-maximizing rate. Raising taxes below that point may increase revenue, while raising them beyond it can shrink the tax base through reduced work, investment, production, or increased avoidance.
American economist Arthur Laffer popularized the idea with policymakers in 1974, reportedly sketching it during a meeting involving Dick Cheney and Donald Rumsfeld. The concept itself was older; Laffer later connected it to historical thinkers including Ibn Khaldun and John Maynard Keynes. Journalist Jude Wanniski helped popularize the name “Laffer curve.”
The curve does not identify one universal ideal tax rate. Its shape depends on the tax system, taxpayer behavior, enforcement, time horizon, and economy. A common error is assuming every tax cut raises revenue; that follows only when the existing rate is above the revenue-maximizing point, which must be estimated and is highly disputed.