Suppose Congress enacts a tax reform law, and the average federal tax rate drops from 30 per- cent to 20 percent. Researchers investigate the impact of the tax cut and find that the income subject to the tax increases from $600 billion to $800 billion. The theoretical explanation is that workers have increased their work effort in response to the incentive of lower taxes. Is this a movement along the downward-sloping or the upward-sloping portion of the Laffer curve?

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Laffer Curve Analysis

In terms of economics, the Laffer curve was popular among those economists who were or who belonged to the supply side of the economic peripheral.  This concept was popularized by the famous supply-side economist known as Arthur Laffer. This curve illustrated the relationship between the tax rates and government revenue. It is already known that the tax which the public or individuals residing in an economy bear is the revenue or income of the government with the help of which the government does all the necessary works in the society, which is beneficial for the economy.