This topic contains a solution. Click here to go to the answer

Author Question: Assume an income tax was doubled. Describe what would happen to labor supply and leisure. Can we be ... (Read 73 times)

leo leo

  • Hero Member
  • *****
  • Posts: 566
Assume an income tax was doubled. Describe what would happen to labor supply and leisure. Can we be about the net effect on labor supply?
 
  What will be an ideal response?

Question 2

Bureaucrats who believe in the mission of their bureaus will want to maximize their bureau's budgets to further their perception of the public interest.
 
  a. True b. False



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

alexanderhamilton

  • Sr. Member
  • ****
  • Posts: 334
Answer to Question 1

The doubling of the income tax is going to cause individuals to substitute away from the taxed activity, i.e., earning income. Thus the substitution effect of the tax is going to be decreasing labor supply and increasing leisure. The decline in after-tax income, however, is likely to cause the person to work more to make up some of the after-tax income lost from the new tax. Depending upon how large the income effect is the number of hours worked after the tax could actually increase. Since the income effect could dominate the substitution effect, we cannot be sure that the doubling of the income tax would reduce labor supply.

Answer to Question 2

a





 

Did you know?

Approximately 15–25% of recognized pregnancies end in miscarriage. However, many miscarriages often occur before a woman even knows she is pregnant.

Did you know?

In 1835 it was discovered that a disease of silkworms known as muscardine could be transferred from one silkworm to another, and was caused by a fungus.

Did you know?

As of mid-2016, 18.2 million people were receiving advanced retroviral therapy (ART) worldwide. This represents between 43–50% of the 34–39.8 million people living with HIV.

Did you know?

The highest suicide rate in the United States is among people ages 65 years and older. Almost 15% of people in this age group commit suicide every year.

Did you know?

Warfarin was developed as a consequence of the study of a strange bleeding disorder that suddenly occurred in cattle on the northern prairies of the United States in the early 1900s.

For a complete list of videos, visit our video library