A recently laid off person receives transfer payments from the government while unemployed. When this person begins employment again at a job that pays slightly more than the transfer payments, the transfer payments are eliminated. Supply-siders would say that this person faces _____ from starting to work.

Question

Quizplus · Accepted Answer

Supply-siders argue that when transfer payments are eliminated upon employment, the individual faces a high implicit marginal tax rate because the effective gain from working, compared to receiving transfer payments, is significantly reduced. This can disincentivize work because the additional income from employment is substantially offset by the loss of transfer payments.

A Recently Laid Off Person Receives Transfer Payments from the Government