Definition of Laffer Curve

curve, named for U.S. economist Arthur Laffer, that relates marginal tax rates to total tax revenue. At first, increases in the marginal tax rate raise total tax revenue, but eventually, a tax rate is reached beyond which total tax revenues decrease.

curve named for U.S. economics professor Arthur Laffer, postulating that economic output will grow if marginal tax rates are cut. The curve is used in explaining supply-side economics, a theory that noninflationary growth is spurred when tax policies encourage productivity and investment.