Taxes and Incentives to Work


Combating worker laziness often provides the paramount challenge for employers. Economists have long understood that government taxes reduce individuals’ incentives to work. Understanding how taxes affect effort will help you motivate employees.

Consider a game where you must decide how much to work. The more you work, the more money you get. Unfortunately, for every extra hour you work, you actually have to work one more hour. For mortal man, time is the most precious commodity. When we work, we trade time for money, and the more money we earn per hour, the more most of us are willing to work.

When the government taxes you, it reduces the benefit you get from working. If you must pay, for example, 40 percent of your earnings in taxes, then for every extra dollar you make, you really get to keep only 60 cents. This is one of the reasons why high taxes slow economic growth, because they reduce incentives to work.

For example, assume that a college professor has the opportunity to teach a summer class for $10,000. The professor would be willing to do it for only $8,000, but if he does teach the course, he will net only $6,000 after paying taxes. Consequently, the professor doesn’t teach the course, choosing summer leisure over high-taxed employment.




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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