2.3.

Theoretical Framework
Laffer Curve Theory
The theory explains its concept through the use of a curve. It simply says that
if a tax rate is zero, the government will not have any revenue obviously. But if a tax
rate is raised to 100%, then the government will not generate any revenue either.
Laffer curve is a common sense way of depicting increase tax rates may not
generate additional revenue for the government. However, the respond of revenue
to a tax change still depends upon the tax system in a given place, the time period
implemented, and the current tax rate followed.
The main thought behind the connection between tax rates and tax revenues
is that amendments in tax rates have consequences on revenues: the arithmetic
effect and the economic effect. The arithmetic effect states that if tax rates are
decreased, tax revenues will decrease as well and vice versa. On the other hand,
the economic effect implies optimism in the sense that lower tax rates will create
more output and employment. When the two said effects are combined, the
outcome of the change in tax rates on tax revenues are not that noticeable.