Economics (AS & A Level) · May / June 2021 · Paper 31 · Question 29

In country X the marginal rate of income tax imposed on the highest earners was 83% which increased to 98% if income was received from interest or dividends. The highest marginal rate was then reduced to 40%. Despite this reduction, the tax revenue raised from the highest earners increased substantially. Which theoretical concept illustrates this relationship between tax rates and tax revenue?

1. Athe J curve
2. Bthe Laffer curve
3. Cthe Marshall-Lerner condition
4. Dthe Phillips curve

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