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Does income tax provide a disincentive to work effort?
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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Does income tax provide a disincentive to work effort? Atkinson and Stiglitz say in their lectures on public economics, 'neither economic theory nor empirical evidence can provide a conclusive answer to the effect of income taxation on labour supply...the analysis can provide considerable insight' (1980.) An income tax is taken from earned income and usually deducted from wages of employees by their employers. This type of tax is assessed and collected from the employee and is known as a direct tax. The economic theory of income tax requires us to look at the supply curve of labour. There are some assumptions that need to be made: * The individual can vary their hours of work * There are no non-pecuniary benefits from work * The income tax is proportional * The demand for labour is perfectly elastic * All earnings are taxable * There is just one wage rate The individual will choose the optimal...
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