Question: Supply-side personal income tax cuts are expected to work by increasing work incentives. Which of the following explains why such tax cuts might not have the expected? effect?
A. Workers may use their increased real income to purchase more? leisure, and thus labor supply will not increase.
B. Firms will be able to reduce wages when income tax rates? fall, since real wages are now higher.
C. Workers do not respond to change in tax rates since they have to work anyway.
D. Firms will invest more and replace workers with capital when there are income tax cuts.
E. Since there are rational? expectations, it will be expected that tax cuts are only temporary.