Posted: 2/18/2007 4:59:04 PM EDT
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Could one of you guys answer this question for me? I'm waiting for my textbook to arrive and have been searching google for the past hour trying to answer this question. I'd really appreciate it if one of you guys could help me out. Question: Use the labor/leisure model to analyze the effect on labor supply of a lump-sum tax (such as property tax), and an income tax (the tax rate t is constant regardless of earnings). Identify the income effect and the substitution effect (if any) caused by each tax. |
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The lump-sum tax will have the effect of a person being willing to be more productive and work more and harder, since after he clears the tax, he keeps everything he earns. Every hour he doesn't spend working is money he could be earning tax-free. In contrast, the more a person works with a fixed income tax rate, the government's going to still take a bite out of his earnings, so after a certain point they'll be more inclined to take it easy because working longer and more days, the government is still there taking its cut while you're working harder. That substitution of leisure can be justified, because those longer hours are going to be harder on the worker, and the gov't will just tax it anyway. |
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I won't answer it for you, but I can point you in the right direction: www.econmodel.com/classic/index.htm |
Oh ok. I guess I can go make another zumbo or I hate my life thread. Are those more to your liking? 
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