An increase in the average tax rate and a decrease in the marginal tax rate will

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Quizplus · Accepted Answer

An increase in the average tax rate means people are paying more taxes on average, which may discourage them from working. However, a decrease in the marginal tax rate means people get to keep a higher percentage of their additional income (the money they earn on top of their base salary), which may encourage them to work more. Overall, if the decrease in the marginal tax rate outweighs the increase in the average tax rate, it could lead to an increase in the labour supply. This, in turn, may lead to an increase in government revenues (although this is not always the case). However, the question does not provide enough information to determine the effect on government debt.

An Increase in the Average Tax Rate and a Decrease