A tax cut will unambiguously lower income-tax revenue.

Question

Quizplus · Accepted Answer

It depends on how the quantity of labor supplied responds to the increase in the after-tax wage rate.If the income effect dominates,the quantity of labor supplied falls and so will tax revenue.If the substitution effect dominates,the quantity of labor supplied increases,and income-tax revenue could increase.This is a function of whether the after-tax wage was low already because the tax rate was relatively high.

A Tax Cut Will Unambiguously Lower Income-Tax Revenue