Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result the tax base falls from $400 billion to $375 billion.As a result,tax revenues __________,indicating the nation is on the __________ portion of its Laffer curve.

Question

Quizplus · Accepted Answer

When the flat income tax rate is reduced, the tax revenues usually fall. In this case, the tax base has also fallen, indicating that people are working less (as less income is being taxed). This implies that the nation is on the upward-sloping portion of its Laffer curve, where decreasing tax rates decrease tax revenues. Therefore, option C is the correct answer.

Suppose That in a Certain Nation the Flat Income Tax