Taxes

1) Why may relative income tax rates between countries give only a partial picture of the international competitiveness of these countries? What else would need to be taken into account?

Factors such as the social security chrge also matter. Sometimes it is more profitable to pay higher income tax in a country, where the social payment is lower. 

2) Does making taxes more steeply progressive necessarily act as a disincentive to output? Explain.

It depends on the rate of taxes. If the low income workers (25 000 $ a year or less) have to pay a very low tax, and the tax rate progressively rises, but not to a very high level, then itt does not necassarily have to act as a disincentive output.

3) What factors are likely to determine the relative size of the income and substitution effects of tax changes?

4) How progressive are income taxes in the UK compared with other countries? Give examples.

The UK taxes vary in their rates between 0-50%. It is a significant difference in comparison to other major eonomies. For example, in th US the tax rates vary between 15-35%, Germany 14-45% or France 5,5-40%.

5) What externalities (positive and negative) might result from steeply progressive income tax rates?

People, disencouraged by the too high tax rates might try to alocate their income in other countries, where the taxes are lower (such as Dubai, where the income tax does not exist).  Therefore, a hi-tax state, instead of a high input, might actually get less. Also this form of taxation may discourage people to work longer or to get promotion (in order to pay less). Positive thing is, that somoe societies claim the progressive income tax to be fair, and thanks to that people will feel more content.

6) What determines the international elasticity of supply of labour?

a) The real wage rate on offer in the industry itself : higher wages raise the prospect of increased factor rewards and should boost the number of people willing and able to work
b) Overtime: Opportunities to boost earnings come through overtime payments, productivity-related pay schemes, and share option schemes and financial discounts for employees in a certain job.
c) Substitute occupations: The real wage rate on offer in competing jobs is another factor because this affects the wage and earnings differential that exists between two or more occupations. So for example an increase in the relative earnings available to trained plumbers and electricians may cause some people to switch their jobs. In recent times, the British media has been fond of stories of people leaving jobs in academia (including high level university research) and moving in household services because the basic rates of pay and potential earnings are so much greater.
d) Barriers to entry: Artificial limits to an industry’s labour supply (e.g. through the introduction of minimum entry requirements or other legal barriers to entry) can restrict labour supply and force average pay and salary levels higher – this is particularly the case in professions such as legal services and medicine where there are strict “entry criteria” to the professions. Indeed these labour market barriers are partly designed to keep pay levels high as well as being methods of maintaining the quality of people entering these professions

The labour supply curve:

7) What is the Laffer curve? How will the shape of the Laffer curve be affected by the international mobility of labour and international tax rates? 

In economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation.