Why are there two different views on the effect of taxation on labor supply in the united states?

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Social Studies

Emiliano

2 March, 08:26

Why are there two different views on the effect of taxation on labor supply in the united states?

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Ellie Blevins · Answer 1

There are several reasons that cause the difference, such as:

- The effect of a tax on labor supply depends on the amount of deadweight loss created by the tax.

Some argue that high tax will reduce labor supply since people couldn't afford to hire them. But this is heavily dependent on how much people decides to become lazy and choose to live off government welfare rather than actually working.

- It depends on the normative questions such as how much to tax or how much government intervention is necessary.

For example, the government can impose a high minimum wage in order to increase the number of labor and reduce it in order to decrease it.

- The effect of a tax on a labor supply depends on the elasticity of labor supply

If the country is experiencing a depression, labor supply tend to be inelastic. Regardless of how much taxes the government impose, there will still be many people trying to find jobs to make sure they can fulfill their basic needs.