Hi,
I came across this test question on Economics in a textbook and am puzzled by the answer and explanation given.
Question: High rates of personal income tax are thought to have a dis-incentive effect. This refers to the likelihood that the high rates of tax will:
A) Encourage illegal tax evasion by individuals
:) Lead to a reduction in the supply of labour
C) Lead to a reduction in savings by individuals
D) Discourage consumer spending and company investments
Choose 1 answer out of above 4 options
My answer would be (D) but the textbook says the answer is (:) and the explanation is simply that "The dis-incentive effect refers specifically to the disincentive of individuals to work."
I couldn't quite reconcile this answer because if my government increase my personal tax rate, I would feel unhappy but it will not make me less wanting to work. In fact, I'll probably want to increase my income further to offset the effect of the higher tax that I have to pay.
What do you guys think?
I came across this test question on Economics in a textbook and am puzzled by the answer and explanation given.
Question: High rates of personal income tax are thought to have a dis-incentive effect. This refers to the likelihood that the high rates of tax will:
A) Encourage illegal tax evasion by individuals
:) Lead to a reduction in the supply of labour
C) Lead to a reduction in savings by individuals
D) Discourage consumer spending and company investments
Choose 1 answer out of above 4 options
My answer would be (D) but the textbook says the answer is (:) and the explanation is simply that "The dis-incentive effect refers specifically to the disincentive of individuals to work."
I couldn't quite reconcile this answer because if my government increase my personal tax rate, I would feel unhappy but it will not make me less wanting to work. In fact, I'll probably want to increase my income further to offset the effect of the higher tax that I have to pay.
What do you guys think?