A report on the EU economic stimulus plan suggested that "... Governments must consider ... cutting VAT [value added tax] and labor taxes ..." The VAT is similar to a sales tax. If governments follow the suggestions, there will be according to the supply- side view.

Question

Quizplus · Accepted Answer

According to the supply-side view, cutting labor taxes would incentivize more people to enter the workforce or work longer hours, thereby increasing the labor supply. Cutting VAT would increase consumer spending and stimulate demand, which would encourage firms to hire more workers to meet the increased demand. Both these actions would result in an increase in labor supply and a decrease in the tax wedge, making option D the best choice.

A Report on the EU Economic Stimulus Plan Suggested That