Question

Is an increase in the marginal income tax rate reflected by a shift in the after-tax supply of labor or a movement along the supply curve when the pretax wage rate is on the vertical axis?

Answer 1

A shift in the supply curve of labour.

Step-by-step explanation:

An increase in marginal income tax rate cause the income tax burden on a consumer to rise as the consumers income goes up.

What this means is that as his income gets to rise, he would have to pay more in taxes. Due to a rising change in what he pays as tax, what he would receive as income after tax would be lower at the same number of labor hours. On the labor supply curve this would depict a downward shift.

In conclusion, an increase in marginal tax would be shown by a shift in the after tax supply of labor which would fall backwards or downwards