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

Tchai Tavor, Limor Dina Gonen and Uriel Spiegel
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Tchai Tavor: Department of Economics, The Max Stern Academic College of Emek Yezreel, Emek Yezreel 1930600, Israel
Limor Dina Gonen: Department of Economics and Business Administration, Ariel University, Ariel 4077625, Israel
Uriel Spiegel: Department of Management, Bar-Ilan University, Ramat Gan 5290002, Israel

Mathematics, 2022, vol. 10, issue 6, 1-19

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.

Keywords: multi-peaked Laffer curve; backward-bending supply curve; inverted labor supply; net wage rate (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
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