Question

Minneapolis Federal Reserve Bank economist Edward Prescott estimates the elasticity of the U.S. labor supply to be 3. Given this elasticity, what would be the impact of funding the Social Security program with tax increases on the number of hours worked and on the amount of taxes collected to fund Social Security? Because labor supply is elastic, raising the tax rate will the percent of hours worked by than the percent decrease in wages paid. That is, total income will and total revenue collected by taxes will . Social Security be financed by increasing tax rates.

Answer 1

The impact of funding the Social Security program with tax increases on the number of hours worked and on the amount of taxes collected to fund Social Security would be:

Because labor supply is elastic, raising the tax rate will reduce the percent of hours worked by more than the percent decrease in wages paid.

Step-by-step explanation:

The reason behind this answer is that in the first place labor supply is elastic in other words it has no strict guidelines. Therefore, it can be executed in many different ways even after following the federal law of employment. Also, the tax rate replacement will be bigger than the percent decreased in wages aid because the company can find different turns to distribute it even when executing the funding of the program without exceeding it. Because social security can't be increase by raising taxes. The income will fall and the income from taxes will increase.