In the labor market, the income tax creates a tax wedge which raises the _{--------------------}wage rate, reduces the _{--------------------}wage rate, and _{--------------------}employment.

Question

Quizplus · Accepted Answer

The income tax creates a tax wedge by increasing the before-tax wage rate that employers pay and decreasing the after-tax wage rate that employees receive, which typically leads to a decrease in employment.

In the Labor Market, the Income Tax Creates a Tax