The Double-Peaked Shape of the Laffer Curve in the Case of the Inverted S-shaped Labor Supply Curve

Tchai Tavor, Limor Dina Gonen, Uriel Spiegel

Research output: Contribution to journalArticlepeer-review

Abstract

The classical backward bending of the labor supply curve has been extended to the case of the inverted S-shaped labor supply curve during the last three decades. According to this extension, at very low net wage levels near the subsistence income level, the positive shape of the supply curve of labor may also be curved backward and become negatively sloped. A decrease in the low wage rate requires an increase in the labor supply, to maintain a minimum income level for survival. The S-shaped curve leads to a double-peaked Laffer curve, which also includes the possibility of three tax rates, each of which enables the collection of the same tax revenue. This may occur in contrast to the traditional single-peaked Laffer curve, which has two tax rates with the same revenues.

Original languageEnglish
Article number858
JournalMathematics
Volume10
Issue number6
DOIs
StatePublished - 1 Mar 2022

Bibliographical note

Publisher Copyright:
© 2022 by the authors. Licensee MDPI, Basel, Switzerland.

Keywords

  • Backward-bending supply curve
  • Inverted labor supply
  • Multi-peaked Laffer curve
  • Net wage rate

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