That increased productivity enables workers to earn higher wages, as wages in a competitive market equal the marginal productivity of labor (what the worker adds to production).
However, a VAT would result in a smaller increase in marginal tax rates on labor than an income tax rate hike.
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In addition, the effective marginal tax rate on labor income would rise from about 28 percent now to about 36 percent in 2037.
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For example, some researchers find that the economy-wide cost of a carbon tax would be considerably lower if the revenue were used to reduce marginal tax rates on labor, capital, or personal income than if it were used to offset costs imposed on low-income households.
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Another explanation is surely the slow pace of job growth, which means fewer opportunities to entice what economists call the "marginal" worker back into the labor force.
High marginal tax rates and burdensome business and labor market regulations put huge wedges in the EU's labor markets and severely limit the EU's growth potential.
Both disaffected groups have tended to support the Liberal Party, and many of their members live in marginal constituencies along the urbanised east coast, where Labor needs to snatch only a handful of seats to take power.
U.S. neighbor, Canada, imposes a marginal tax rate of 31.2% on its labor force.
The upsides would be that workers may better learn about their marginal productivity, and it could thus lead to more efficient allocations of labor.
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In recent decades, the casebooks have added the feminist point that joint filing tends to perpetuate a traditional division of labor by penalizing two-worker couples and to imposing a high marginal tax rate on working wives.
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