ABSTRACT
This chapter suggests that the number of individuals in the community remains unaltered; and that the industrial and employment opportunities with which each individual is confronted also remain unaltered after the tax is imposed. When the increment in the income tax is imposed, the people in the community who have to pay it experience a reduction in the amount of income that they receive from each unit of their labour output. Professor Knight has argued that when an income tax is imposed, each individual, as a result of it, will necessarily increase his supply of labour. Knight's argument, it is true, recognises that when an income tax is imposed a change takes place in the utility of a unit of income to the individual. On balance the income tax, taking into account both its collection and its expenditure, will tend, ceteris paribus, to reduce the supply of labour in the community.
