The effect of an increase in the personal income tax is to
Answer Details
The effect of an increase in the personal income tax is to reduce the disposable income of taxpayers. When personal income taxes are increased, taxpayers have less money to spend on goods and services, as more of their income is going towards taxes. This reduction in disposable income can lead to a decrease in consumer spending, which can have a negative impact on businesses and the economy as a whole.
Increasing personal income taxes may also have a distorting effect on the economy, as it can create disincentives for individuals to work, save, and invest. However, it is not likely to raise the absolute price level, as this is determined by a variety of factors including supply and demand in the economy. Furthermore, an increase in personal income taxes is not directly linked to a reduction in unemployment, as this is influenced by a wide range of factors such as economic growth, labour market policies, and the overall state of the economy.