【正文】 C, by about one unit. ? Gross investment, I, was unchanged. ? Also unchanged were the real wage rate, w/P, the real rental price, R/P, and the real interest rate, r. Macroeconomics Chapter 13 29 An Increase in Government Purchases Financed by a Labor Ine Tax ? Now bine ? the permanent increase in G ? and the higher marginal ine tax rateτw ? The ine effect increases the supply of labor. Macroeconomics Chapter 13 30 An Increase in Government Purchases Financed by a Labor Ine Tax ? We found in this chapter that the substitution effect from a higher marginal tax rate, τw, on labor ine reduces the quantity of labor supplied. ? The effect on the supply of labor is not so large. Macroeconomics Chapter 13 31 An Increase in Government Purchases Financed by a Labor Ine Tax ? Empirically, the overall effect from permanently increased government purchases, G, on the quantity of labor supplied, Ls , seems to be small. Macroeconomics Chapter 13 32 An Increase in Government Purchases Financed by a Labor Ine Tax Macroeconomics Chapter 13 33 Transfer Payments ? Suppose that the government increases real transfers, V, and finances these expenditures with increased real taxes, T, collected by a tax on labor ine. ? In this case, marginal ine tax rates, τw, rise for two reasons. ? First, the rise in T goes along with a higher τw for households that pay individual ine taxes. ? Second, for households that are receiving transfers— such as poor welfare recipients— the expansion of the transfer program raises the implicit