Suppose last year Moe faced a 25% marginal tax rate. This year tax rates increased and now Moe faces a 30% marginal tax rate. Moe chooses to work fewer hours this year because

Question

Quizplus · Accepted Answer

The increase in tax rates means that Moe gets to keep less of each additional dollar earned, so the opportunity cost of not working (i.e. the cost of leisure) has decreased. As a result, Moe may choose to work fewer hours since the leisure time is now relatively cheaper.

Suppose Last Year Moe Faced a 25% Marginal Tax Rate