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A change to personal income tax rates has both an income and a substitution effect on labor supply.  If personal income tax rates decline,    a. the income effect would lead people to decrease labor supply while the substitution effect would lead people to increase labor supply b. the income effect would lead people to increase labor supply while the substitution effect would lead people to decrease labor supply c. both the income effect and the substitution effect would lead people to increase labor supply d. both the income effect and the substitution effect would lead people to decrease labor supply

A change to personal income tax rates has both an income and a substitution effect on labor supply.  If personal income tax rates decline,    a. the income effect would lead people to decrease labor supply while the substitution effect would lead people to increase labor supply b. the income effect would lead people to increase labor supply while the substitution effect would lead people to decrease labor supply c. both the income effect and the substitution effect would lead people to increase labor supply d. both the income effect and the substitution effect would lead people to decrease labor supply

Microeconomics: Principles & Policy
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter17: Taxation And Resource Allocation
Section: Chapter Questions
Problem 2DQ
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A change to personal income tax rates has both an income and a substitution effect on labor supply.  If personal income tax rates decline, 
 
a. the income effect would lead people to decrease labor supply while the substitution effect would lead people to increase labor supply
b. the income effect would lead people to increase labor supply while the substitution effect would lead people to decrease labor supply
c. both the income effect and the substitution effect would lead people to increase labor supply
d. both the income effect and the substitution effect would lead people to decrease labor supply
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