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Why high rates of personal income tax will lead to a reduction in the supply of labour?
My take would be that a rise or very high rates of income tax will create dissatisfaction amongst the employment pool. This could cause reluctance in sharing a big chunk of income with the government etc. An example will be, if someone earning 38,000 pa, and the next threshold is 40,000 for a further higher band of tax, is offered opportunity to work overtime might decline to do so as the tax deductions might be substantial.
Any other views?
the labour will then seek employment or prefer to work elsewhere where tax is low.
Some prefer to be remain in their position and have family time than a high positon and high tax and high work load. this would lead reduce labour supplyArguably, in some cicumstances, an increase in taxation will not lead to a decrease in the supply of labour and could actually increase the supply of labour as a result of something economists call the income effect.This process basically involves individuals seeking to maintain a target level of income by working more hours ,if available, in response to falling per hour real incomes.
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