Laffer Curve is an analytical technique that displays a nonlinear dependence of the degree of taxable income on taxation.
Author of the Laffer curve is an American economist Arthur Laffer. If the tax rate is zero, the tax return is also zero. Likewise, if the tax rate is 100%, tax revenue is zero, because no one will work. Laffer curve says that increasing tax rate tends to tax avoidance. At low taxes, tax evasion is not worth the risk, but with an increasing degree of taxation it is worth risking more. The greater the income from tax evasion, the greater the risk the operator is willing to take.
As the tax rate increases, the increases in state tax revenues are shrinking. Higher tax rates weaken economic performance, increases tax evasion and raises capital flight abroad. This decreases the tax base and as a result the decrease of tax paid.
Laffer curve has a different shape in the short and in the long run. In a short period the top (Laffer point) is around 70% as in the picture below. In the short term only a few can react quickly, so in the short run at a higher tax rate it is possible for higher tax revenue. In the long run, however, there are companies and people moving out of the country, moving to the black market or at least to prefer leisure over work.
Laffer Curve in practice: In economics, it is used to display dependence of the degree of tax revenue on taxation.