A tax on wages will

Question

A tax on wages will

Quizplus · Accepted Answer

A tax on wages has both substitution and income effects on labor supply. The substitution effect leads to reduced labor supply because the tax makes leisure cheaper relative to work. The income effect, on the other hand, leads to an increase in labor supply as workers need to work more to maintain their previous level of consumption. The overall impact on labor supply depends on the magnitude of these two effects, which may vary depending on individual preferences and circumstances. Therefore, the impact of a tax on wages on labor supply is unpredictable in general.

A Tax on Wages Will