A percentage of tax affect on changes relative prices of products. In consequence, most economists, chiefly neoclassical economists, argue that taxation makes market distortion or results in economic inefficiency unless there are (plus or minus) externalities associated with the activities that are taxed that require to be internalized to gain an efficient market outcome. They have in consequence seek to identify the kind of tax system that would minimize this distortion. Recent bachelorship proposes that in the United States of America, the federal government effectively taxes investments in higher education more heavily than it subsidizes higher education, thereby helping to a shortage of competent workers or unusually high differences in pre-tax incomes between highly educated or less-educated labours.
Taxes can even have effects on worker supply: we could consider a model in which the consumer selects the number of hours spent working also the amount spent on consumption. Let us suppose that just one good exists also no income is saved.