Which of the following statements about the income effect of an income tax rate increase is true?
A)The income effect is theoretically stronger for low-income taxpayers than for high-income taxpayers.
B)The income effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner.
C)The income effect motivates individuals to find ways to increase their before-tax income.
D)Both A.and C.are true.

Question

Quizplus · Accepted Answer

The income effect of an income tax rate increase refers to the change in an individual's purchasing power due to a reduction in after-tax income. This effect is stronger for low-income taxpayers (option A) because they have less disposable income to start with, making the loss of income relatively more significant. Additionally, the income effect is more pronounced for the secondary wage earner (option B) in a family because they are likely to be lower-paid than the primary wage earner. The income effect can motivate individuals to find ways to increase their before-tax income (option C) such as working more hours or taking on additional jobs to maintain their standard of living. Therefore, options A and C are both true, making option D the correct answer.

Which of the Following Statements About the Income Effect of an Income