Posted by Melissa92 on Monday, December 14, 2009 at 9:28pm.
Because leisure is a normal good.
If you cut income taxes, then the after-tax income for each hour worked goes up. This effect alone should cause a person to want to work more. This is the direct substitution effect labor-for-leisure.
However, leisure is a desireable thing. For some, if after-tax income goes up one thing they may want to purchase is more leisure. Thsi effect causes a person to want to work less. This is the income effect. If the income effect > substitution effect, then the person works less.
With respect to work incentives, studies indicate that decreases in tax rates lead some people to work more but lead others to work less. Those who work more are enticed by the higher after tax pay; they substitute work for leisure because of the opportunity cost of leisure has increased. But other people work less because of the higher after tax pay; enables they to, “Buy more leisure.” With the tax cut, they can earn the same level of after tax income as before with fewer work hours.
Related Questions
ECONOMICS - Suppose you are a typical person in the U.S. economy. You pay 4 ...
LABOUR ECON...TAX QUESTION - k here is the question suppose a government imposed...
Tax - Anyone knows what's the tax rate in Minnesota? I don't know the ...
Economics - Suppose that the Government runs a pension fund to which all workers...
Economics - Suppose that a family's tax liability equaled its income ...
U.S. Government -PLEASE HELP! - A contemporary liberal would most likely oppose ...
government(taxes) - I am looking for a list of California state taxes. So far ...
debate - i just need some point or info on pro side: - Taxes gain more money ...
MicroEconomics - You are a typical person in the US economy. You pay 4 percent ...
Economics-Tax Question - I know the answer to the following question is either (...
For Further Reading
