In 2003, Ireland reduced its corporate tax rate from 16 percent to 12.5 percent. In labor markets this would ________, which would ________.
A) cause an increase in labor demand; push real wages up
B) cause an increase in labor supply; push down nominal wages
C) have no impact on labor markets; have no effect on inflation
D) increase TFP; push real wages up
E) cause a decreased demand for labor; cause price stickiness

Question

Quizplus · Accepted Answer

A reduction in corporate tax rate is likely to attract more businesses to locate in Ireland, leading to an increase in labor demand. This would push real wages up as firms compete for workers.

In 2003, Ireland Reduced Its Corporate Tax Rate from 16