If we want to gauge how much the income tax system distorts incentives, we should use the
A)average tax rate.
B)ability-to-pay principle.
C)total tax revenue collected.
D)marginal tax rate.

Question

Quizplus · Accepted Answer

The marginal tax rate is the correct choice because it measures the rate at which the last dollar of income is taxed, thus directly affecting individuals' incentives to earn additional income. It is the most relevant rate when considering the distortion of economic behavior, such as work effort or investment, due to taxation.

If We Want to Gauge How Much the Income Tax