Economics of Macro Issues 7th Edition by Roger LeRoy Miller,Daniel Benjamin

Exercise 5

Let's suppose that income tax rates rise significantly over the next ten years. How can people at all levels of income react over time, not just immediately after taxes are raised? How will the size of the response differ, say, a year after the rise in tax rates compared to a week after the increase? Is it possible that some people will actually change their behavior before the higher tax rates go into effect? Explain.