[laf-er] 
| a relationship postulated between tax rates and tax receipts indicating that rates above a certain level actually produce less revenue because they discourage taxable endeavors and vice versa. |
| Laf·fer curve or Laf·fer Curve (lāf'ər) n. A curved graph that illustrates the theory that, if tax rates rise beyond a certain level, they discourage economic growth, thereby reducing government revenues. [After Arthur Laffer (born 1940), American economist.] |
Laffer Curve
Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments. The chart below shows the Laffer Curve: 
The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.
Investopedia Commentary
Governments would like to be at point T*, because it is the point at which the government collects maximum amount of tax revenue while people continue to work hard.
Related Links
Economics Basics Tutorial
See also: Economics, Income Tax