Question

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Q “Europeans work less than North Americans because they face higher tax rates.” Discuss.

Answer 1

Ans) "In this world nothing is certain but death and tax" ----- Ben Franklin.

Government provides public with various goods and services which raise the economic well being. But to conduct these activities, government need money. This money is raised in many form, one of which is imposing tax.

One one hand, tax helps government to run its day to day business and redistribute the income. On other hand, it also creates some deadweightloss.

High tax rates may reduce the incentive to work, as major part of the income will be paid as tax. Where as nominal tax rate gives incentive to work as a person can keep significant amount of his income for himself.

Total government tax revenue as percentage of GDP some countries ÷

Sweden 49%

France 44%

Germany 36%

Canada 33%

US 28%

Mexico 21%

Here we see that many European countries pay nearly 50% of their income as tax, whereas North American countries pay far less.

This is the main reason why Europeans work less than North Americans.

For eg- If a person earns $100 (let us suppose both European and American countries accept dollar) in American country, he can keep approx $70 with himself. But if a person earns $100 in European country, he can keep only $50 with himself. This demotivate the workers as they lose the incentive to work.