Continuous increase in tax rates will result in:

Answer: [C] Increase in tax revenue up to a point and then decrease

The basic principle is that zero tax rate would produce zero revenue and a 100% tax rate would also generate zero revenue; why would people work if everything is taken off in taxes. Thus, there is a need to have an optimal tax rate, which would yield maximum revenue for the government. When all other things being equal, if tax rates are lowered, tax revenues will drop in the same proportion. Any increase should also make collections grow, but this happens only up to a point. This is also known as Laffer Curve.

This question is a part of GKToday's Integrated IAS General Studies Module