The income tax rate is the level of income tax that an individual pays on income earned. Income tax is divided into bands. In the UK there are three bands;

• Reduced rate
• Basic rate
• Higher rate

It is very difficult to speculate on the likely impacts on the individual due to the complexities of income and substitution effects. Empirical studies on the topic of labour market reform highlight that broad statements are very misleading within this area.

University students can apply their knowledge of indifference curve analysis to illustrate changes in individual's behaviour.

• The reduced rate of income tax is set at 10% (10p in every pound after the tax allowance). The input parameters range between 2% and 22%.
• The basis rate of income tax is set at 22% (22p in every pound after the tax allowance). The input parameters range between 10% and 40%.
• The higher rate of income tax is set at 40% (40p in every pound after the tax allowance). The input parameters range between 22% and 60%.

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