A flat-rate tax on labor income will:

Question

Quizplus · Accepted Answer

A flat-rate tax on labor income can either increase or decrease hours worked per year depending on the elasticity of labor supply. If labor supply is highly elastic, meaning that workers are very sensitive to changes in their after-tax wages, a flat-rate tax will lead to a decrease in hours worked as workers will choose to work less to maintain their desired level of after-tax income. On the other hand, if labor supply is inelastic, meaning that workers are relatively unresponsive to changes in their after-tax wages, a flat-rate tax will have little effect on hours worked.

A Flat-Rate Tax on Labor Income Will