Effect of reducing marginal income tax rate on wage rate, employment–population ratio, and unemployment .

Question

The table below shows labor income for four individuals and the amount each has paid in income taxes. Labor Income, Tax Paid, and Average Tax Rate Labor Income Tax Paid (dollars) $6,300 9,240 11,200 17,500 Individual Samantha Charles Amanda Young (dollars) $45,000 66,000 80,000 125,000 Average Tax Rate (percent) The income tax is proportional. The income tax is progressive. The income tax is regressive. % P Instructions: Enter your answers as a whole number. a. Complete the table above by calculating the average tax rate paid by each individual. b. Is the income tax depicted here progressive, regressive, or proportional?

Answer 1

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Chapter 7, Problem 3E

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Effect of reducing marginal income tax rate on wage rate, employment–population ratio, and unemployment.

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The table below shows labor income for four individuals and the amount each has paid in income taxes. Labor Income, Tax Paid, and Average Tax Rate Labor Income Tax Paid (dollars) $6,300 9,240 11,200 17,500 Individual Samantha Charles Amanda Young (dollars) $45,000 66,000 80,000 125,000 Average Tax Rate (percent) The income tax is proportional. The income tax is progressive. The income tax is regressive. % P Instructions: Enter your answers as a whole number. a. Complete the table above by calculating the average tax rate paid by each individual. b. Is the income tax depicted here progressive, regressive, or proportional?

d) Illustrate and carefully explain the impact of an increase in the income tax rate from 25 percent to 35 percent on the demand for labour, supply of labour, equilibrium wage and level of employment.

Workers are generally willing to work more hours when wages increase because the opportunity cost of leisure increases with higher wages. higher labor incomes are taxed at a lower rate by the government. workers fear wages will soon fall as immigration increases. workers are not motivated to work for higher wages.