Before signing the contract

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Profitable. In the long run, no owner can afford to lose financially and is forced to lay off some of his employees to reduce the tax liabilities associated with their employment. Development of the gray zone - work will be performed "in the dark", i.e. it will not be taxed. Some products whose prices have increased as a result of the tax increase will be purchased from illegal or hidden production, which will reduce the volume of taxable turnover. The effects of the Laferr curve Reducing tax rates may have various effects - economic, arithmetic, income or substitution. Economic effect It is long-term in nature. Lower taxes contribute to higher incomes by encouraging greater consumption.

As a result, growing demand stimulates the economy - production and employment increase, and people are more willing to invest. Arithmetic effect Each reduction in tax liabilities means lower state revenues, limiting the power of the stimulating function of taxes. Income philippines photo editor effect Higher public levies reduce the final wages that workers receive. People may feel the need to work more to achieve the expected income. Substitution effect Another possible scenario is that employees may feel discouraged by lower wages and will not see the point in working harder. Examples of the Laffer curve Below we present examples of economic situations when this phenomenon could be observed USA.



In the s, California cut property taxes by more than half. Tax rates dropped from to , which resulted in an increase in revenues to the US budget by . It also showed that tax reforms most often affect the wealthiest taxpayers. Their share increased from to . . However, almost half of the less wealthy population paid less - from . to . Other noticeable effects of reducing applicable tax liabilities in the United States were to increase labor supply by approximately and encouraged society to invest more.