An increase in taxes on labor income shifts the labor supply curve ________ and the ________.

Question

Quizplus · Accepted Answer

When taxes on labor income increase, the opportunity cost of working increases as individuals have to give up more of their leisure time. This leads to a decrease in the quantity of labor supplied, which shifts the labor supply curve leftward. As a result, the after-tax wage rate falls because fewer workers are willing to supply labor at the same wage rates as before.

An Increase in Taxes on Labor Income Shifts the Labor