As the tax wedge between pre-tax and post-tax returns for an economic activity gets larger, we would expect:

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Quizplus · Accepted Answer

As the tax wedge between pre-tax and post-tax returns for an economic activity gets larger, the distortions caused by taxes on that activity to be greater. This is because higher taxes create a disincentive for individuals and businesses to engage in that economic activity, leading to lower overall productivity and economic growth. Therefore, we would expect the negative effects of taxes to be more pronounced as the tax wedge increases. choices B, C, and D do not accurately reflect this relationship.

As the Tax Wedge Between Pre-Tax and Post-Tax Returns for an Economic