# LABOUR ECON...TAX QUESTION

k here is the question

suppose a government imposed an employment tax. That is upon entering the labour force an, individual had to pay a lump sum tax. (if they don't work, they don't have to pay the tax). How ould this affect the individual's labour supply curve?

Good question!

Start with a classic labor/leisure employment model. Here, people work until the marginal value of leisure equals the wage rate. Under this model, the lump sum tax generally has NO impact on hours worked. (except in the "corner solution" case where the tax causes the person not to work at all) Here, the lumpsum tax is a fixed cost, and does not affect the marginal value of leisure.

However, I would argue the labor/leisure model is incomplete. The tax will have an income affect. Lets change the model to a labor/consumption model. Here, a person will work until the value of the marginal utility from consumption equals the wage rate. Since the first x hours of work go to pay the tax, the value of the marginal utility will be higher at the original pre-tax equilibrium number of hours. Ergo, the person will work more hours (unless the person doesnt work at all.)

1. 👍 0
2. 👎 0
3. 👁 138

## Similar Questions

1. ### economics

Payroll Tax- You are an economic consultant to a city that just imposed a payroll tax of \$1 per hour of work. This payroll tax is paid by workers through a payroll deduction; for each hour of work, the employer deducts \$1 and

asked by Anonymous on November 29, 2011
2. ### Micro-Economics

Suppose that the government imposes a tax on heating oil. 1. Would the deadweight loss from this tax likely be greater in the first year after it is imposed or in the fifth year? 2. Would the revenue collected from this tax likely

asked by Ann on October 5, 2014
3. ### Economics

Suppose that the equilibrium quantity in the market for widgets has been 200 per month. Then a tax of \$5 per widget is imposed on widgets. The price paid by buyers increases by \$2 and the after-tax price received by sellers falls

asked by Samantha on November 12, 2011
4. ### Economics

36. Consider a depressed economy that, even after significant monetary stimulus efforts that pushed short-term interest rates to close to zero, still experiences a recessionary gap of 1,200 billion dollars and 10 % unemployment

asked by Abdo on December 17, 2019
5. ### CALCULUS ECONOMICS

Consider an oligopolistic market with two firms. Each of them produces using a cost function given by c(q)=q^2. The aggregate demand in the market is given by 1000−p. Suppose that, in order to increase production, the government

asked by Jenney on March 13, 2014
6. ### Macroeconomics

to raise funds at providing more support for public schools,a state government has just imposed a unit excise tax equal to \$4 for each monthly unit of telephone services sold by each telephone company operating in the state. The

asked by Sue on May 24, 2010
7. ### Macroeconmics

to raise funds at providing more support for public schools,a state government has just imposed a unit excise tax equal to \$4 for each monthly unit of telephone services sold by each telephone company operating in the state. The

asked by Sue on May 24, 2010
8. ### Economics

A monopoly firm faces a demand curve given by the following equation: P = \$500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = \$100 per day. Assume that the firm faces no fixed cost. You may wish to

asked by Bob on May 3, 2016
9. ### Social Studies

What are some reasons why the state government of Massachusetts imposed tax helped people out?

asked by Leslie on September 30, 2009
10. ### Economics

If, when there is full employment, the federal government increases its spending without increasing its tax revenues, generally: 1. an increase in employment will occur 2. a serious depression will occur 3. the national debts will

asked by Ami on September 14, 2009

More Similar Questions