Suppose that taxes on labor are increased by 10 percent and workers respond by working 2 percent fewer hours.It can be said that

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Quizplus · Accepted Answer

The tax elasticity of labor supply is calculated as the percentage change in labor supply divided by the percentage change in taxation. Here, a 10% increase in taxes leads to a 2% decrease in labor supply, resulting in a tax elasticity of -2%/10% = -0.2.

Suppose That Taxes on Labor Are Increased by 10 Percent