The Government Is Proposing to Increase the Tax Rate on Labour

The government is proposing to increase the tax rate on labour income and asks you to report on the supply-side effects of such an action. According to the research of Edward C. Prescott, cross-country evidence for Canada, the United States, the United Kingdom, and France shows all of the following except

A) the greater the tax wedge, the smaller the level of employment and the smaller the potential GDP.
B) potential GDP per person in France is 14 percent below that of the United States (per person) and the entire difference can be attributed to the difference in the tax wedge in the two countries.
C) potential GDP per person in the United Kingdom is 41 percent below that of the United States (per person) and about a third of the difference arises from the different tax wedges.
D) between Canada, the United States, France, and the United Kingdom, the tax wedge is greatest in the United Kingdom, and the country with the smallest tax wedge has the smallest potential GDP.
E) potential GDP per person in Canada is 16 percent below that of the United States but this difference is due to different productivities.