Any help on the following question would be greatly appreciated!
Question:
The government can levy taxes four ways to pay for its spending: lump-sum tax, tax on labor income, tax on consumption, and tax on asset income. Each tax is permanent: the same rate in all years. If not for the intertemporal substitution effect, the income effect offsets the substitution effect. The intertemporal substitution effect from the tax causes current year labor (relative to labor in other years) to:
Lump-sum Tax: Increase, Decrease, or Not Change
Tax on Labor Income: Increase, Decrease, or Not Change
Tax on Consumption: Increase, Decrease, or Not Change
Tax on Asset Income: Increase, Decrease, or Not Change
My take on the question is:
Increase
Not Change
Decrease
Increase
Question:
The government can levy taxes four ways to pay for its spending: lump-sum tax, tax on labor income, tax on consumption, and tax on asset income. Each tax is permanent: the same rate in all years. If not for the intertemporal substitution effect, the income effect offsets the substitution effect. The intertemporal substitution effect from the tax causes current year labor (relative to labor in other years) to:
Lump-sum Tax: Increase, Decrease, or Not Change
Tax on Labor Income: Increase, Decrease, or Not Change
Tax on Consumption: Increase, Decrease, or Not Change
Tax on Asset Income: Increase, Decrease, or Not Change
My take on the question is:
Increase
Not Change
Decrease
Increase
VEE Economics Question