Which curve demonstrates how tax cuts can affect tax revenues?

The Laffer Curve is the correct choice because it illustrates the relationship between tax rates and tax revenue. It suggests that there is an optimal tax rate that maximizes revenue for the government. If tax rates are too high, they can lead to decreased economic activity and, consequently, lower tax revenues, as individuals and businesses may have less incentive to earn additional income or may even engage in tax avoidance strategies. Conversely, cutting tax rates can stimulate economic activity, encouraging people to work harder, invest more, and ultimately generate greater overall tax revenue. The Laffer Curve effectively captures this dynamic, demonstrating that lower tax rates can, under certain conditions, lead to increases in total tax revenue rather than decreases.

In contrast, other curves listed do not specifically address this relationship between tax rates and revenues. The Budget Curve typically relates to fiscal outcomes of government spending versus revenues but does not detail the nuanced relationship of tax cuts. The Supply and Demand Curves focus on market interactions and equilibrium prices rather than direct effects of tax policy on revenues.