In 2008, Britain decided to cut its value added tax (VAT) to 15 percent from 17.5 percent. The VAT is similar to a sales tax. According to the supply-side view, this change will increase
I. the after-tax wage.
II. the incentive to work.
III. the supply of labor.

Question

Quizplus · Accepted Answer

A reduction in VAT decreases the overall tax burden, potentially increasing the after-tax wage (I), enhancing the incentive to work (II), and thereby increasing the supply of labor (III) as individuals are more motivated to work due to higher effective earnings.

In 2008, Britain Decided to Cut Its Value Added Tax