The diagram shows how a negative income tax system (NIT) operates: households earning more than Yt pay tax, while households earning less than Yt obtain a tax credit. What would be the effects of reducing the effective tax rate, causing the NIT schedule to move 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