Tax rate effectively changes relative prices of products. Therefore, most economists, particulary neoclassical economists, argue that taxation makes market distortion and outcome in economic inefficiency except there are (positive or negative) externalities connected with the activities that are taxed that require to be internalized to achieve an efficient market output. They have in consequence search to recognize the kind of tax system that would minimize this distortion. Recent bachelorhood suggests that in the US, the federal government effectively taxes investments in higher education more heavily than it subsidizes higher education, thereby helping to a deficiency of competent workers or unusually high disparities in pre-tax revenues between highly educated or less-educated labours.
Taxes can even have effects on labor supply: we could take into consideration a model in which the consumer selects the number of hours spent working and the amount spent on consumption. Let us suppose that just one good exists or no income is saved.