Question

True or False: The more that the labor supply decreases in response to a decrease in wages, the larger are the supply-side effects of an increase in tax rates (that is, the decrease in output is largerdue to a tax increase).

Answer 1

Correct Answer:

1. True

Step-by-step explanation:

Taxes affect work activity directly through labor supply-and-demand channels and indirectly through government spending responses to available tax revenues. It has been determined that higher tax rates on labor lead to less work time in the legal market sector.