In the long run,
A) fiscal policy has no effect on the labor force participation rate.
B) lower tax rates can lower the labor force participation rate.
C) less generous transfer payments can raise the labor force participation rate.
D) higher tax rates can raise the labor force participation rate.
E) None of the above.

Question

Quizplus · Accepted Answer

Less generous transfer payments (such as unemployment benefits) can incentivize individuals to enter or re-enter the labor force, thus raising the labor force participation rate. Fiscal policy, which includes taxation and government spending, can also have indirect effects on the labor force participation rate through its impact on overall economic growth and job creation. However, lower tax rates may not necessarily lead to higher labor force participation if they do not stimulate economic activity and job creation. Higher tax rates may also discourage work and reduce labor force participation.

In the Long Run