If the compensated elasticity of supply of labor is zero, then a tax on labor earnings will have zero excess burden.

Question

Quizplus · Accepted Answer

If the compensated elasticity of supply of labor is zero, it means that the supply of labor does not respond to changes in wages. In this case, a tax on labor earnings will not induce workers to adjust their work hours and the tax revenue will be the same as the tax burden. Therefore, there will be no excess burden.

If the Compensated Elasticity of Supply of Labor Is Zero