What is Laffer curve?

The Laffer Curve is an economic theory that illustrates the relationship between tax rates and tax revenue. It posits that there is an optimal tax rate that maximizes revenue; if tax rates are too low, revenue is insufficient, but if they are too high, they can discourage work and investment, leading to reduced revenue. The curve suggests that increasing tax rates beyond a certain point can actually decrease total tax revenue. Essentially, it highlights the trade-off between tax rates and economic activity.