Labor Supply Theoretical considerations Progressive taxes Consider three tax rates t, for income under L t2 for income between L and M t3 for income greater than M The effective wage rate(and the slope of the budget constraint) changes as hours of work Increases 1212 Labor Supply: Theoretical Considerations • Progressive taxes – Consider three tax rates – t1 for income under L – t2 for income between L and M – t3 for income greater than M • The effective wage rate (and the slope of the budget constraint) changes as hours of work increases