Th4.5: ^^ Incentives to Work Flashcards
It is argued that high marginal rates of tax will…
discourage individuals from working
Free market economists argue…
that the supply of labour is relatively elastic and a reduction in marginal taxes on income will lead to a significant increase in work as individuals work longer hours, accept promotions and more people join the workforce
What could high taxes on high income earners encourage them to do?
move abroad
What may taxes on the poor lead to?
a poverty trap
Why is it income tax that is important?
high income tax reduces incentives more than high VAT - thus a switch from direct to indirect taxes may increase incentives
However, there is no hard evidence for the link between…
income tax and incentives
It can be argued that higher taxes mean people have to…
work longer hours in order to maintain their income and so even increases the incentive work
