Background: The Laffer curve depicts the amount of government revenue as a function of the rate of taxation. It shows that for a tax rate above a certain critical rate, government revenue starts decreasing as the tax rate rises, as a consequence of a decline in labour supply. This theory supports that, if the tax rate is above that critical point, a decrease in the tax rate should imply a rise in labour supply that in turn would lead to an increase in government revenue.

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country increased their taxes?
Answer: Silvania

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country decreased their taxes?
Answer: Hinland

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country experienced a decrease in labor supply?
Answer: Silvania

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country experienced an increase in labor supply?
Answer: Hinland

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country experienced an increase in government revenue?
Answer: Hinland

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country experienced a decrease in government revenue?
Answer: Silvania

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country experienced a decrease in collection amounts?
Answer: Silvania

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country experienced an increase in collection amounts?
Answer: Hinland

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country had better social programs?
Answer: Hinland

Situation: The country of Hinland reduced taxation hoping it would mean more money for government spending. On the other hand, Silvania, a southern country increased taxation hoping they would increase collection amounts. The problem was that Silvanian people increased taxation above the critical rate.

Question: Which country had worse social programs?
Answer: Silvania