The higher the marginal tax rate for a given welfare program,the greater the damage to the work incentives of recipients,ceteris paribus.

Question

Quizplus · Accepted Answer

When the marginal tax rate (the rate at which additional income is taxed) is higher for a welfare recipient, it can create a disincentive to work or earn additional income as they may face a reduction in their benefits or higher taxes on their income. This reduces their willingness to work and makes it more difficult for them to escape poverty. Hence, higher marginal tax rates can result in greater damage to the work incentives of recipients, ceteris paribus.

The Higher the Marginal Tax Rate for a Given Welfare