New Treasurer Scott Morrison flags income tax cuts to kick start economy” Daily Telegraph September 23, 2015.

Both the previous Treasurer Joe Hockey in http://jbh.ministers.treasury.gov.au/speech/027-2015/ and the current Treasurer Scott Morrison have advocated that personal income tax should be cut n order to boost productivity.

a) Explain the effect of cutting all marginal personal tax rates on the participation rate?

For parts b) and c) below consider those workers that are employed for

i) A fixed number of hours per week that cannot be changed,

ii) Those that can choose to work more/less and

iii) Those that can offer to work more/less but the offer may not be accepted.

b) Explain the effect of cutting all marginal personal tax rates on worker’s hours, effort for promotion and net income assuming that all individual labor supply curves are linear and upwards sloping with respect to after tax wages.

c) Explain the effect of cutting all marginal personal tax rates on worker’s hours, effort for promotion and net income for high and low wage earners assuming that individual labor supply curves are backwards bending (that is upwards sloping at low wages but downward sloping at high wages).