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How can changes to taxes cause a reduction in the public deficit?

Increasing the level of direct taxes to reduce the fiscal deficit would lead to a disincentive to work amongst the rich as they will be less willing to work overtime and more inclined to reduce working hours and people on benefits would not find an incentive to work. It could mean that the tax revenues for the government would fall at a very high tax rate if we are initially on the elastic side of the laffer curve. (DIAGRAM). It would also lead to more tax avoidance and tax evasion amongst the rich which could also lead to tax exiles. Therefore tax revenue will fall in the long run causing a larger fiscal deficit. However it will improve the distribution of income in the UK. 

ZoeTemiloluwa C. GCSE Religious Studies tutor, GCSE Economics tutor, ...

2 years ago

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