The diagram shows how a negative income tax system (NIT) operates: households earning more than Yt pay tax, while households earning less than Yt get a tax credit. What would happen if the effective tax rate were reduced, so that the NIT schedule moved from NIT1 to NIT2?
- Aeffect on work incentives decrease; effect on net tax revenue increase
- Beffect on work incentives decrease; effect on net tax revenue uncertain
- Ceffect on work incentives increase; effect on net tax revenue increase
- Deffect on work incentives increase; effect on net tax revenue uncertain