Question

Assess the likely labour supply response to Government policies which will reduce

the marginal rate of income tax, particularly the base rate, and reduce the real

value of welfare benefits.

Answer 1

Marginal rate of income tax is the percentage of income taken from your next additional dollar of taxable income ,according to the pre-defined rates.

Hence if that rate will reduce,people will have more income with themselves to spend on their needs.Therefore,the government services targeting the poorest people in the society,will be less impactful,i.e. the real value of benefit will not be less.As now people have money from their side also to spend.They have that capability to spend on goods and services.They dont need that much support from government side.Their dependancy has been reduced.