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This makes no sense. If my tax rate goes up, why would I work less? All other things considered equal, getting taxed more and working less is a double-whammy. I
by dgrant 15y ago
This makes no sense. If my tax rate goes up, why would I work less? All other things considered equal, getting taxed more and working less is a double-whammy. If anything I think I would work more.
- yummyfajitas 15y agoSuppose your marginal utility from an hour of leisure is 1.0, and your marginal take home income is $100/hour (yielding 1.1 units of utility). In this situation you choose to work, since this maximizes your utility (1.1 > 1.0). Now suppose tax hikes reduce your marginal take home income to $80, which only yields you 0.9 units of utility. Now you choose leisure, since 1.0 > 0.9.
- Hyena 15y agoThe issue with these examples is that they presume people can actually trade additional work for additional leisure. What has been pointed out is that if I raise your taxes, you have that much less income with which to maintain your lifestyle, the same as any price increase. If people stop working because of taxes, we should see them stop working because of other tax-like behavior, e.g., increases in house prices or energy costs.