Answer to Question #62144 in Economics for azadrizwin

Question

discuss what might happen in a economy if government increases income tax rates

Answer 1

Once income taxes increased work productivity declines, as people choose to work less. Initially government income increases, which makes it able to increase expenses for the social sector, science and defense. However, with a decline in productivity this trend becomes slower.
Once the taxes are increased, the population receives less money. This decreases its consumption capacity. Therefore, economic growth of the state becomes slower.