In the labour market, the income tax creates a tax wedge which raises the ________ wage rate, reduces the ________ wage rate, and ________ employment.

Question

Quizplus · Accepted Answer

Income tax creates a tax wedge that raises the before-tax wage rate (employers' cost), reduces the after-tax wage rate (workers' take-home pay), and decreases employment due to the increased cost of labor for employers and reduced incentive for workers.

In the Labour Market, the Income Tax Creates a Tax