Laffer curve: a standalone construct

The earliest known statement of the idea appears in Ibn Khaldun's Muqaddimah (1377), which observed that the low tax assessments imposed early in a dynasty yield a large total revenue while the heavy assessments imposed later yield less. The modern construct is named for the economist Arthur Laffer, who in the 1970s used a simple curve to make the point, and the label was coined by the journalist Jude Wanniski in a 1978 article. The construct describes the relationship between a government's tax rate and the total revenue it collects: revenue is zero at a rate of zero, and is taken to be zero again at a rate of 100 percent because there would be no incentive to earn taxable income, so revenue is expected to rise and then fall as the rate climbs, implying at least one intermediate rate that yields the most revenue. What makes it a landmark is that it treats the revenue-maximizing tax rate as an explicit object of study rather than assuming revenue always increases with the rate; where that peak lies, and whether a given economy sits above or below it, is an empirical question examined with taxable-income elasticities and macroeconomic models. It is a stylized relationship about the shape of the tax-revenue function, not a claim about any particular rate.[1][2][3][4]

Unit

A stylized curve mapping the tax rate to expected total tax revenue

Recovery means

Not applicable

Measured by

Estimated empirically from taxable-income elasticities and macroeconomic models that trace how revenue responds as marginal tax rates change